Market Review April 2018

Mixed month for US markets

Equities markets in the United States closed the month just a bit higher, with the Dow Jones ending April at 24,163, or 0.8% higher than when the month began. While the beginning of April was promising, markets took a tumble on April 24th, with the Dow losing 425 points, and the Nasdaq losing 1.7% of its value.

In a poll conducted by the Conference Board, only 33% of people expect stock prices to rise this year, down from 51% in January. One analysts believe that when the year started, “Investors were way too confident — they seemed to see only the positive aspects of the Trump administration’s agenda,” Now it seems that investors are coming back down to earth with their expectations. Maybe US investors have reason to worry, as domestic GDP growth slowed to 2.3% for the first quarter of the year, down from 2.9% at the end of 2017. This falls short of the Trump Administration’s goal of a consistent 3% growth rate throughout the year.

One bright spot for the economy is the increase in business spending that looks to propel the economy forward for the coming year. For 130 of the S&P 500 companies to have reported earnings, 39% of them saw capital expenditures increase, a rate not seen since 2011. Other key corporate figures also saw positive signs, such as an 11% increase in dividends and 16% more stock repurchases from corporations. Many wonder if these positive figures stem from the Tax Cuts and Jobs Act passed by Congress in December of last year, propelling increased corporate spending.

Iran, other geopolitical issues threaten oil prices

As Israeli Prime Minister Benjamin Netanyahu claimed Iran lied about its pursuit of nuclear weapons after signing an agreement to cease all activity in 2015, oil prices were given yet another reason to surge. US crude oil ended the month at $68.69 and Brent at $74.79. This comes on the heels of a threat by the US to exit the Iran nuclear deal, a decision it will make by May 12th, an act which could lessen oil exports in the country by as much as 300,000 barrels per day some analysts anticipate.

Meanwhile, other geopolitical tensions in oil-producing countries across the world threaten even higher prices for the rest of the year. Venezuela continues to be an economy in ruins, and now the government is having trouble keeping up with infrastructure needs for oil production, causing substantial year-over-year production decreases. In the meantime, other oil-producers such as Yemen, Libya, and Nigeria continue to battle internal conflict and war which always create uncertainty.  

Amazon, McDonald’s beat earnings

It may be no surprise to some that the world’s largest online retailer crushed its earnings for the first quarter of this year, reporting earnings of $3.27 per share compared to the $1.22 analysts were estimating. Revenue came in at $51.04 billion, also above the estimated $50.17 billion. Amazon’s stock price shot up more than 6% after its earnings call, and analysts were so pleased with the results, they believe the stock can go even higher, with some setting a price target at $2,000 for the company this year. AMZN ended the month settling at about $1,566 per share.

Another American staple, McDonald’s, also saw its stock jump almost 6% after it reported stellar earnings. Same-store-sales rose 2.9% over the quarter and the company reported $1.72 per share in earnings better than the $1.47 per share it earned over the same period last year. Total earnings for the company were $1.38 billion. McDonald’s stock closed the month above $167.

Sprint, T-Mobile merger?

After plenty of back-and-forth, including three previous attempts at a merger, both Sprint and T-Mobile claim they have a deal in place for T-Mobile to purchase Sprint at an estimated $26 billion price tag. The biggest hurdle at the moment comes from regulators which will have to determine if this acquisition violates antitrust laws. Some analysts aren’t so optimistic the deal will pass through regulators, with one analyst putting the odds at 40%.

If the deal goes through, the new company would be called T-Mobile and run by current T-Mobile CEO John Legere. Shareholders of Sprint would obtain 1 T-Mobile share for every 9.75 Sprint shares, with T-Mobile’s parent company owning 42% of the company, Sprint’s parent company owning 27%, and the public owning the remaining 31%.

 

Global economy looks good, but there’s still reason for caution

Global economic growth is at its highest rate since the financial crisis of 2008, and forecasts from the IMF predict even higher growth for the next several years. In its World Economic Outlook, the IMF raised its growth forecasts for the global economy by 0.2% for this and next year, and revised its projections even higher for advanced economies by 0.5%.

It seems that unemployment levels sinking below 6% in advanced economies is continuing to help growth. However, wage-rate growth continues to sputter below 2% year-over-year, which leaves these economies in an interesting environment of more employed workers, but ones that are not receiving better pay.

Another factor that is raising red flags is the growing levels of global debt, which, once again, continue to break records as worldwide debts surpass $160 trillion. This has led the IMF deputy managing director, David Lipton, to comment that within the context of the global economy, “Things are good, but they’re getting risky.”

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