Earnings and Economic Data Become Increasingly Influential

Stocks rose for the second straight week to begin the second quarter, although the gains were more muted. The MSCI All Country index climbed 0.4 percent after rising 2.1 percent the previous week, and the S&P 500 added 0.5 percent after also posting a 2.1 percent gain the previous week. In the process, the S&P crossed back above the 2900 level and now sits less than one percent below its all-time high of last September. All of the gains came on Friday as JP Morgan Chase began earnings season with a far better than expected result. Despite an array of headwinds facing the banking industry, including low rates and a flat yield curve, sluggish trading volume and soft loan growth, JP Morgan nevertheless produced a solid quarter that contributed to the rising sense of optimism among investors.

Economic News is Constructive, but Not Conclusive

The second quarter began much the same as the first. Stocks surged higher last week on evidence of stabilizing global growth with little evidence of inflationary pressures. In the U.S., the S&P 500 rose 2.1 percent and the Nasdaq rose 2.7 percent. The EuroStoxx 50 index climbed 2.9, led by a 4.2 percent rise in the German Dax. The Nikkei climbed 2.8 percent, and emerging market stocks rose 2.6 percent, led by a 5 percent rise in the Shanghai Composite index.

Will the Second Quarter Provide an Inflection Point for Markets?


Stocks ended the first quarter on a strong note, as the S&P 500 rose 1.2 percent last week, putting aside for the moment concerns over the sluggish pace of global growth. After treading water for much of March and having declined in two of the previous three weeks, stocks found some support late in the week as the plunge in bond yields stabilized, bringing its gain in the year’s first three months to 13.1 percent. It was the best quarter for the S&P 500 since the third quarter of 2009 when the economy was first coming out of recession.

Investors Spooked by Global Growth Concerns

Renewed concerns of slowing global growth, in Europe in particular, sent stock prices and bond yields sharply lower on Friday. Friday’s report of weaker than expected manufacturing activity within the Eurozone, especially in Germany, sent stocks on the continent sharply lower and pushed the German ten-year bond yield into negative territory for the first time since October 2016. The selling extended to the U.S., as the S&P 500 fell almost 2 percent and the yield curve between the 3-month bill and ten-year note inverted, historically an accurate, although not infallible harbinger of recession. Cyclical stocks bore the brunt of the selling, led to the downside by materials, financials and energy. Asian stocks caught up to Friday’s weakness in Monday trading this week, as the Nikkei fell 3 percent overnight and the Shanghai Composite fell 2 percent.