Last Week
Stock market trading got off to a grim start on Monday, with no tariff agreements reached over the weekend and President Trump intensifying his pressure on Fed Chair Jerome Powell to lower rates or face termination. North Star Chief Investment Officer Eric Kuby provided an overview of those issues on Reuters. De-escalation of those two issues for the rest of the week provided the backdrop for a powerful rally, not only erasing the 3% Monday decline but leading to a gain of 4.6% for the S&P 500, 6.7% for the Nasdaq Composite, and 4.1% for the Russell 2000.
Solid earnings releases also fueled the rebound. After three innings, the first quarter earnings game is off to a solid start, with S&P 500 composite results on track to show a 10.1% increase. The Communications sector was the largest contributor in the overall earnings growth rate for the index during the week, fueled by the positive EPS surprise reported by Alphabet, Netflix, and Comcast. As a result of those results, the blended earnings growth rate for the Communication Services sector increased to 23.3% from 4.5% over this period. The Health Care sector also saw an increase of 36.7% from 33.3% over this period. We have recently added the Health Care Sector SPDR (XLV) to our Equity ETF model. Please get in touch with us if you are interested in discussing that strategy.
The currency, commodity, and bond markets were all stable. The yield on the 10-year Treasury dipped 6 basis points to 4.27%, as the dollar inched higher and gold wiggled marginally lower.
Tariff talk or tweets are still the primary determinant of the mood on Wall Street. Whereas the recent spin was more encouraging, it is far from clear as to the outcome of this misadventure. Even the solid corporate earnings reports are backward-looking, with the forward guidance either withdrawn or uncertain. We expect stock market volatility to remain elevated and recommend that investors stick to the low end of their target equity levels. Dividend-paying companies have performed the best in this difficult environment and remain an area that we would overweight.
The mood of the Chicago sports scene also improved, with the Cubs holding first place in the NL Central. North Star’s University of Michigan alumni were thrilled by the Bears selecting Wolverine tight end Colston Loveland with their first-round draft pick. All White Sox, Blackhawks, and Bulls commentary is on hold until the fall.
This Week
We enter the middle innings of earnings season, with 180 S&P 500 companies reporting results.
The two economic reports in focus are the Bureau of Economic Analysis’s personal consumption expenditures index for March on Wednesday and the Bureau of Labor Statistics’ jobs report for April on Friday. The PCE is expected to show continued improvement, reaching its lowest level of inflation since March 2021. The labor market is forecasted to show a modest monthly gain in non-farm payrolls, with the unemployment rate remaining at 4.2%.
Investors will continue to wait for news from the White House on tariffs and a myriad of other issues, bringing to mind the 1979 Tom Petty tune “The Waiting.” Released during a time when America was grappling with economic uncertainties and social changes, the song captures a sense of longing that many people felt during that era and is even more extreme today: “You take it on faith, you take it to the heart, The waiting is the hardest part.”
Have a good week and try to remain patient during this turbulence.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvest.com.