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Market in a Minute: May 7-11, 2018

Sunday, May 13, 2018

Executive Summary

Monday began with a bit of a shaky start on news that President Trump was going to scuttle the Iran nuclear agreement. After that settled in, earnings and muted inflation reports gave global equities a solid advance for the week. Stocks swooned briefly on Friday afternoon when Trump released his drug price-lowering blueprint. They stabilized again as it became clear that specifics were lacking. Volatility (as measured by the CBOE Volatility Index VIX) continued to decline, ending at 12.9 from 14.8 a week earlier.

Responding to anticipated new Iranian oil sanctions, WTI crude oil price hit its highest level since December 2014. From our perspective, this is particularly bad timing. The summer driving season typically pushes up gas prices without any help. 

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Details

Domestically

West Texas Intermediate crude oil rallied as high as $71.89 a barrel last week in the wake of president Trump’s move to pull the US out of the Iran nuclear agreement. Iran – OPEC’s third largest exporter – raised production by over a million barrels/day when sanctions were lifted in early 2016. Unless a new deal is reached, sanctions will begin to be imposed again in 90-180 days. Some Iranian production is expected to be lost. Saudi Arabia says it will work with others to mitigate any potential supply shortages.

The 10-year Treasury slipped back after another peek above 3%. Milder-than-expected rises in the CPI and core CPI kept the rate in check. CPI rose 0.2% in April from March, while core (ex food and energy prices) rose a scant 0.1%. The data suggest the Fed can maintain its gradual rate-hiking pace.

Nearly 91% of the S&P 500 Index companies have reported for Q1. Earnings/share growth is running at a remarkable 24.9% compared with a year ago. Revenues are growing at an 8.2% year-over-year rate.

The Trump/Kim Jong Un summit will be held on June 12 in Singapore. Secretary of state Pompeo went to Pyongyang in preparation and surprisingly returned home with three American detainees that had been held by Kim’s regime.

US, Mexican and Canadian negotiators are scrambling to conclude an updated NAFTA agreement. House speaker Paul Ryan gave them a May 17 deadline. He says Congress needs an agreement by then for it to be considered in this year’s legislative session.

Globally

Tensions between Iran and Israel ratcheted up further this week, with Iran firing rockets into Israeli-held territory from Syria. Israel to struck back, destroying a good deal – if not all – of Iran’s Syrian military infrastructure.

Italy appears to be close to forming a coalition government between the populist Northern League and the 5-Star Movement. European leaders are concerned about the euro-skeptic alliance. Leaders of both factions have said such a government would not be a threat to Europe and leaving the euro is not a priority. 


Sources:
The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; BBC News; The Associated Press; Reuters.com; Crain’s New York Business; MFS research; NYSE; NASDAQ; Dorsey-Wright Associates; NYMEX.com; CNBC’s Power Lunch & Squawk Box programs; Investing.com; Markit.com; the New York Times; Standardandpoors.com; Djindexes.com; 247wallstreet.com; MarketWatch.com; Morningstar.com; Thomsonreuters.com; the Financial Times.com; Briefing.com; BusinessWeek.com; Dol.gov; Fxstreet.com; Streetinsider.com; Ycharts.com;
 
The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.
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Tax and/or legal information contained herein is general in nature and for informational purposes only. It should not be relied upon as advice. Consult your tax professional or attorney regarding your unique situation.
Past performance is no guarantee of future results.
 
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