Weekly Market Commentary April 23, 2018

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Stocks moved higher last week as gains in the energy, industrial, and financial sectors overcame weakness in tobacco and technology stocks. The S&P 500 rose 0.5%, and the global MSCI ACWI climbed 0.4%. The Bloomberg BarCap Aggregate Bond Index dropped 0.6% on inflation and interest rate concerns.

Key points for the week

  • Stocks rose and bonds dropped during the week.
  • Chinese GDP is strong now, but concerns for future growth are deepening.
  • Energy stocks are rallying and have room to run.

Economic News

China’s economy grew by 6.8% in the first quarter of 2018, beating analyst expectations by 0.1%. This marks the third straight quarter of 6.8% growth. However, growth is expected to slow in coming quarters. Metrics, such as real estate investment, industrial growth, and fixed asset investment growth, are down for March compared to January and February. As a result, China’s central bank cut reserve requirements for lenders in hopes the extra liquidity and improved profit margins prevent economic growth from derailing.

Market Perspective

Oil prices have resumed their upward climb in recent months, following a pause from the sharp run that began after a low point in June 2017. (See chart above.) Many investors attribute the increase to heightened geopolitical tensions as oil prices often rise with the risk of conflict. We agree geopolitical risks are a contributing factor, but there are others pushing oil higher.

  • OPEC and Russia have shown improved discipline in keeping production levels low.
  • Inventories are declining faster than expected.
  • A top oil-producing region in the U.S., the Permian Basin, has a shortage of workers and insufficient pipeline capacity.

Energy stocks were the top performing sector last week. Our general outlook for the sector is positive as energy stocks haven’t risen nearly as rapidly as energy prices. Even with the good week, energy stocks are down 4.2% over the last 12 months, trailing the S&P 500 by more than 15%.

Fun story of the week

Senior golf? Nebraska college golf team has 61-year-old freshman

Don Bryer, a 61-year-old grandfather, is now a freshman golfer for Bellevue University in Nebraska. This came about after a friendly game with Bellevue University’s head coach turned serious when Bryer played consistently under par. Bryer thought the coach was kidding when he asked if he was eligible to play. Turns out he was serious, and Bryer is now the oldest NAIA athlete since 61-year-old kicker Alan Moore played for Faulkner University in Alabama in 2011. But don’t assume Bryer’s age comes with any privilege. His teammates still expect him to lug their bags around every now and then — like a true freshman.


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