Domestic markets ended last week in positive territory, as the S&P gained 0.76%, the Dow was up 0.05%, and the NASDAQ increased 0.96%.[1] This performance marked the 5^th week in a row that the S&P 500 and Dow posted gains.[2] Meanwhile, international stocks in the MSCI EAFE stumbled, losing 1.47% for the week.[3]
Once again, trade and corporate earnings were in the news last week. We learned that the U.S. is considering increasing tariffs on $200 billion of Chinese imports. In response, China announced their own tariffs ranging from 5%–25% on $60 billion of U.S. products.[4]
Corporate earnings season also continued, and so far, more than 78% of S&P 500 companies have beaten estimates.[5] If the trend holds, the 2^nd quarter will likely average more than 20% growth in earnings per share. Companies have also detailed positive perspectives for the rest of 2018, showing that this strong corporate performance should continue.[6]
Of course, last week’s trade and earnings weren’t the only topics on investors’ minds. We also received a number of data reports that shaped our understanding of the economy’s health.
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On Friday, July 20, stocks lost a small amount of ground after President Trump escalated his threats of increasing tariffs on China. However, strong quarterly earnings reports from several large companies helped provide balance in the markets.[1] For the week, domestic indexes experienced little movement, as the S&P gained 0.02%, the Dow was up 0.15%, and the NASDAQ dropped 0.07%.[2] International stocks in the MSCI EAFE had slightly more change, with a 0.63% gain.[3]
What We Learned Last Week

• Corporate earnings rose in the 2^nd quarter
  As of July 20, 87 S&P 500 companies have released their 2^nd quarter data. Of these companies, 83.9% surpassed analysts’ estimated results. In fact, the earnings season is going well enough that analysts have increased their growth projections. They now expect to see companies average 22% earnings growth over the past year, up from 20.7% growth projections on July 1.[4]
• Retail sales increased
  The most recent retail sales data indicated that consumers feel confident in the economy and labor market.[5] June’s strong growth, coupled with upward revisions to May’s results, support predictions for healthy Gross Domestic Product (GDP) increases in the 2^nd quarter.[6]
• Industrial production hit a new record
  In June, U.S. manufacturing and mining increased. Overall, industrial production had an annual rate that was 6.1% higher in the 2^nd quarter than the 1^st quarter of 2018.[7]
• Housing starts dropped
  The latest housing-start report came in far below estimates. This decline occurred across all U.S. regions as homebuilders shared concerns about materials costs and labor shortages. However, housing start data often fluctuates from month-to-month, and reports show that the 1^st half of 2018 is 7.4% higher than the same time period last year.[8] 

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Last week, trade tensions with China lessened somewhat, while the 2^nd quarter corporate earnings season started with mixed results. Against this backdrop, domestic stocks experienced sizable growth. By market’s close on Friday, July 13, the S&P 500 was above 2,800 for the first time since February 1. Meanwhile, the Dow was above 25,000, and the NASDAQ had hit a new record.[1] For the week, the S&P 500 gained 1.50%, the Dow added 2.30%, and the NASDAQ was up 1.79%.[2] International stocks in the MSCI EAFE increased as well by 0.16%.[3]
We are now two weeks into July, which means the 1^st half of 2018 is behind us. As we analyze what may be ahead in the markets, we’ll also strive to understand what has happened so far this year.
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Stocks stumbled across the globe last week as trade tensions continued to escalate. Despite rebounding somewhat on Friday, the S&P 500 experienced its first weekly loss in a month, and the Dow posted its worst week since March.[1] The S&P 500 dropped 0.89%, the Dow lost 2.03%, and the NASDAQ fell 0.69%.[2] International stocks in the MSCI EAFE gave back 0.98%.[3]
While trade headlines may affect market performance, a closer look at the data shows other, more powerful drivers affecting equity prices. In particular, many investors continue to focus on corporate earnings estimates.[4]
Analyzing Corporate Earnings
Strong corporate earnings have helped maintain a sense of market balance in 2018. As the media focuses on political stories, corporate earnings estimates continue to rise—and have a greater market affect than many investors may recognize.[5]

• How Corporate Earnings Estimates Work
  Many financial services companies hire analysts to predict how much a company’s stock will earn per share. The average of all the experts’ predictions creates a consensus earnings estimate. This calculation gives a rough view of the company’s cash flow—which helps investors value a stock. Generally, when a company beats its earnings estimate, the stock price goes up. If it misses or matches the prediction, the stock may suffer.[6]

• Where We Are Now
  Tax cuts and increasing demand have helped earnings estimates grow this year. As the estimates have risen, companies with the largest increases are significantly outperforming those with the worst. The latest numbers show earnings per share growing in 2019 and 2020—and 2018’s projections are higher than they were at the end of the 1^st quarter. This data has helped keep markets from overreacting to the geopolitical buzz in the background.[7] 

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Last week stocks showed mixed results as political headlines continued to dominate the news. The Dow lost 0.89% and the S&P 500 was almost flat with a 0.02% gain.[1] The NASDAQ, on the other hand, reached a record high on Thursday and ended the week up 1.32%.[2] Both the S&P 500 and NASDAQ experienced their 4^th week of gains in a row.[3] International stocks in the MSCI EAFE lost ground, posting a 0.52% decline.[4]
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Markets experienced heightened volatility last week, with the S&P 500 rising 0.49% and Dow dropping 0.48%. Meanwhile, the NASDAQ rose 1.62%, as international markets took a small dip with the MSCI EAFE losing 1.10%.[1] [2]
The markets’ highs and lows came from a variety of economic and geopolitical developments. The U.S. jobs report posted solid gains while international trade concerns continued to cause some unease. In this market update, we’ll break down the major stories to help you understand what moved markets.
Impressive Jobs Report
Outstanding nonfarm payroll employment numbers rolled in on Friday, and the data supports a strong U.S. economy. Here is a snapshot of some key numbers:[3]

• Unemployment dropped to 3.8%—its lowest recording in 18 years.
• Payroll growth jumped to 223,000, far beyond the expected 188,000.
• Average hourly earnings climbed 2.7%; as a result, the Fed will likely raise interest rates two more times in 2018.

Taken together, the data gives investors and analysts a positive outlook. With more people working, consumption could rise, which could increase demand on production and keep people employed. Some analysts believe that this cycle should continue, barring any unforeseen disruptions. Meanwhile, the solid data helped ease market tensions and keep the U.S. dollar up, despite concerns of a potential global trade war.[4]
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Geopolitical uncertainty affected stocks last week, as the historic summit between the U.S. and North Korea began to look less likely. On Thursday, May 24, President Trump announced that the summit was off, and stocks stumbled in reaction. The next day, Trump said the meeting might still occur next month, leaving investors questioning the eventual outcome.[1]
Also on the geopolitical front, an announcement that Saudi Arabia and Russia would consider easing back oil supply restrictions affected stocks. U.S. crude oil prices dropped in response, pulling energy stocks down with them.[2]
Despite these developments, major domestic indexes increased last week. The S&P 500 gained 0.31%, the Dow added 0.15%, and the NASDAQ grew by 1.08%.[3] International stocks dropped, with the MSCI EAFE decreasing by 1.60%.[4]
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­­On Friday, the markets closed the week gaining traction. The Dow had 7 days of consecutive growth, rising 2.34%—its largest weekly gain since March.[1] Meanwhile, the S&P 500 rose 2.41%, the NASDAQ jumped 2.68%, and the MSCI EAFE increased 1.41%.[2]
Various factors came together to support the growth. From geopolitical topics to strong corporate earnings, we’ll focus on 3 key developments that drove movement.

1. Energy Shares Boosted by Iran Nuclear Deal Withdrawal
   President Trump’s decision on Tuesday to withdraw from the Iran nuclear deal helped push the energy sector higher. With the possibility of renewed sanctions on the horizon, the anticipation of a pullback from global oil supplies helped boost prices. Though oil prices fell from a 3½-year high on Friday, it was the 2^nd week of growth, driving energy shares to rise 3.8%.[3]  

2. Technology Sector Jumps Amid Strong Corporate Earnings
   After the technology sector’s months of stagnation—fueled in part by recent fears over privacy—it is now approaching all-time highs. Since April 25, the information technology sector has increased 9%. The movement is driving many investors to join the rally, while many analysts remain cautious.[4] Overall, the growth contributed 3.5%.[5]
   This rally happened on the back of strong corporate earnings. Over 70% of total S&P 500 companies reported earnings growth that exceeded expectations. Last week’s positive reports helped push the index past 50- and 100-day moving averages.[6]

3. Inflation Remains Steady
   The Consumer Price Index (CPI), which measures the price of goods and services, rose only 0.2% for the month in April and 2.5% over the year. These reports both missed and met expectations, respectively.[7] The tepid growth caused some investors to worry that the Federal reserve would raise interest rates more quickly, as the U.S. dollar fell and held below its 2018 high.[8] Some analysts, however, believe that the missed expectations should ease the Fed’s pressure to fast-track interest rates.[9]

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Domestic indexes posted strong results on Friday, May 4, as the latest labor report data lessened investors’ concerns about inflation and interest rates. Nonetheless, stocks had mixed results last week.[1] The S&P 500 dropped 0.24% and the Dow gave back 0.20%, which marked both indexes’ 2^nd week of losses in a row.[2] Thanks to a bounce in tech stocks, however, the NASDAQ gained 1.26%.[3] International stocks in the MSCI EAFE decreased by 0.57%.[4]
Amid this relatively tepid performance, we reached a big milestone on May 1: Our current economic expansion is now officially the 2^nd longest on record. For 8 years and 10 months, the economy has been growing, and many sectors still have room to advance.[5]
As we look to better understand where we stand today, Friday’s employment report provides key insights into our economic health.
What We Learned About Employment

1. Growth Slowed
   The report indicated that the economy added fewer jobs than expected in April, and average hourly wage growth also grew more slowly than forecast. Federal Reserve members watch this data closely to help anticipate changes in inflation.[6]

2. Participation Dropped
   The percentage of working-age people participating in the labor force dropped by 0.1%.[7] This decline may result from people retiring or returning to school but can also come from people choosing to stop looking for work. The lower participation rate may contradict some of the more positive trends we’ve seen recently.[8]  

3. Unemployment Declined
   Despite missing growth projections, unemployment fell to 3.9%, the lowest point in 18 years.[9] The rate has only dropped below 4% during 3 other periods.[10] The low unemployment numbers came more from the lower labor force participation rate than from more people finding jobs.[11]

Key Takeaway
Lower participation rates could affect long-term economic growth. However, the combination of low unemployment and reasonable wage growth are likely a positive scenario for the economy. Many people who want jobs have them, but inflation should remain under control.[12]
As the bull market lumbers toward its 9^th year, many reports continue to indicate a solid economy.[13] If the economic expansion continues through July 2019, it would be the longest in history (with records going back to the 1850s).[14] While that accomplishment would be noteworthy, our focus remains on current circumstances, and striving to find insight that affects your financial future. From trade to jobs to manufacturing and beyond, we have many details to watch on your behalf.
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We just finished the busiest week of 1^st quarter earnings season, and although many companies shared positive results, stock indexes experienced modest declines.[1] The S&P 500 lost 0.01%, the Dow dropped 0.62%, and the NASDAQ gave back 0.37%.[2] International stocks in the MSCI EAFE decreased by 0.39%.[3]
Last week provided a variety of information for investors to take in. On Friday, we received the initial reading of 1^st-quarter Gross Domestic Product (GDP). The data came in more positive than analysts expected, with the economy experiencing 2.3% growth.[4] The latest employment readings also showed costs for benefits and pay rising at the fastest pace in a decade.[5] On the geopolitical front, the leaders of North and South Korea met for historic talks that could result in denuclearizing the Korean peninsula.[6]
As we continue to watch these developments, we want to explore what’s behind our current corporate earnings season.
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