U.S. equities remained stuck in the same narrow trading range for the fifth straight week. The S&P 500 index suffered only a fractional loss, but it took a surge higher on Friday to salvage even that, as anxiety over trade and interest rates was set aside following the April jobs report and some soothing comments from Warren Buffet. The S&P 500 once again flirted with its 200-day moving average at 2616 in intraday trading on Thursday, but again managed to close higher. At the same time, it has failed to close above its 100-day moving average, now at 2705, since April 18, and has done so only twice since March 21.

The economy generated 164,000 new non-farm jobs in April, and including the upward revision to the March report delivered growth in-line with the Bloomberg consensus forecast of 194,000. Together with a modest downtick in the participation rate, the unemployment rate fell to 3.9 percent, its first print below 4.0 percent since 2000. That move will undoubtedly intensify the debate over the relevancy of the Phillips curve, which is used as an indication of the relationship between the unemployment and inflation rates, but at least for this report average hourly earnings growth year-over-year remained relatively benign at 2.6 percent.

There was little movement in bonds during the week. The ten-year note yield fell just one basis point to 2.95 percent, and the two-year rose three to 2.50 percent. High yield credit spreads widened modestly, extending a three-week trend, but ended the week right at the year-to-date average of 350 basis points, and well below its five-year average of 467 basis points. Investment grade spreads also widened modestly last week, but the trend is a little less benign. BBB rated corporate yield spreads have been widening since the start of February, when they bottomed at 115 basis points. The spread ended last week at 148, the widest since last September. While that bears watching, it is still below its five-year average of 180 basis points.

The Fed Seems to be Relatively Confident  

The Federal Reserve left interest rates unchanged last week as expected. In its meeting statement the Fed acknowledged the recent rise in inflation toward its 2.0 percent target, but did so in the context of that target being symmetrical, which it referenced twice. The implication seems to be that the Fed will remain relatively sanguine should inflation rise somewhat above the longer-term target, at least temporarily. At the same time, however, the Fed said nothing to alter the view that it remains on course to raise rates at least twice more this year.

The Consumer Price index for April is scheduled for release on Thursday this week. The year-over-year headline rate is expected to climb to 2.5 percent. That would be the strongest pace since the index hit 2.7 percent in February 2017 before falling to 1.6 percent last June. The core rate is expected to climb to 2.2 percent, its strongest reading since last February as well.

The dollar continued its recent ascent last week, as the U.S. Dollar index (DXY) rose another 1.1 percent, bringing 3.5 percent to its gain since mid-April. Crude oil also continued its climb, with West Texas Intermediate (WTI) rising $1.62 a barrel to close at $69.72. In early trading this week it has pushed above the $70 mark.

Trade Remains an Ongoing Concern; Meanwhile Earnings Results Look Outstanding

It is difficult to assess the relative success of the U.S. trade delegation visit to China last week. The visit ended with no joint statement, and no meaningful breakthrough. That they were received and listened to is progress of sorts, but armed with a list of demands to which China was never going to summarily agree, the conditions for success were virtually unachievable. Stated more positively perhaps, neither did the visit deteriorate into acrimony. This is an issue that will likely persist for some time, and remain an ongoing cause for concern.

Earnings season is winding down and the aggregate results have been outstanding. Factset data now indicates a blended growth rate of 24 percent for the quarter and 19.5 percent for the full year. Nevertheless, since the first quarter earnings season began on April 13, the S&P 500 is virtually unchanged.

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Past performance is not a guarantee of future results.
S&P 500 Index: Is an unmanaged capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The U.S. Dollar Index (DXY) measures the dollar's value against a trade-weighted basket of six major currencies.
The Consumer Price Index is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. Changes in CPI are used to assess price changes associated with the cost of living.
The Bureau of Labor Statistics produces detailed industry estimates of nonfarm employment, hours and earnings of workers on payrolls each month.
The information and opinions in this article are compiled from third party sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the particular needs of an individual investor.
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