Market Week in Review

We’ve already almost tripled all of 2017’s volatility. Why?

On the latest edition of Market Week in Review, Mark Eibel, director, client investment strategies, and Sam Templeton, manager, global communications, discussed the ongoing volatility in markets, first-quarter earnings season and expectations for economic growth in the U.S.

U.S.-China trade tensions, potential Syria strike keep investors on edge

Volatility continued to rattle markets the week of April 9, Eibel said—but broadly speaking, major indexes were trading higher than the previous week, with the S&P 500® Index up roughly 2% as of mid-morning on April 13. “There are still plenty of crosscurrents that investors are grappling with—such as tariffs, trade war fears and the possibility of a U.S. military strike on Syria,” Eibel stated. Because of this, the market is still quite susceptible to daily swings, he remarked, noting that in the past week, major indexes moved up and down based on back-and-forth comments from U.S. and Chinese leaders in regards to trade.

“In my opinion, these continued rounds of volatility illustrate the benefits of portfolio diversification,” Eibel said—“especially on these wild down days when it might seem pretty hard to own just equities.” He added that in the first quarter of 2018 alone, the S&P 500 traded up or down 1% (or more) on 23 days. In contrast, only 8 days in all of 2017 saw a move equal to or greater than 1% in either direction.

Q1 earnings season: What could happen if expectations aren’t met?

First-quarter earnings season is now officially underway, Eibel said, with a handful of major companies reporting their results on April 13. “The ones that have reported so far have beat expectations,” he noted. Eibel and the team of Russell Investments strategists believe that overall, results from last quarter should be strong—perhaps to the tune of 15% year-over-year growth. Some analysts, he noted, are projecting growth as high of 20%.

“Overall, we believe the numbers from the first quarter will be pretty powerful,” Eibel said—“but if the all-around high expectations aren’t met, more market volatility is possible.”

GDP vs. inflation: A looming puzzle for the Fed?

Turning to the soon-to-be released GDP (gross domestic product) number for the first quarter, Eibel said many U.S. economists are expecting a growth rate of 3%. “In my opinion, those expectations may be too high,” he remarked, adding that the U.S. Federal Reserve (the Fed) could be facing an interesting situation if the number does come in softer than expected, given recent signs of a possible uptick in inflation (per data from the Consumer Price Index report for March).

Eibel believes that the Fed is likely to continue focusing more on inflation data as it mulls over additional rate hikes for 2018. “Once we get through earnings season, I think investor attention will turn to this more, in conjunction with the latest round of economic data,” he said—“but for now, all eyes are on corporate earnings.”

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