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U.S. benchmark and blue chip indexes were little changed last week with both settling lower as money flowed into the tech-driven index, which finished higher. The daily market moves continued to be volatile although rangebound. Investors continue to assess the impact of strong first-quarter earnings and improving economic growth with worries about rising interest rates and a potential U.S.-China trade war.
For the week, the benchmark S&P 500 Index settled at 2663.42, down 0.20%. It’s down 0.40% for the year. The blue chip Dow Jones Industrial Average closed at 24262.51, down 0.20%. It’s off 1.80% in 2018. The tech-driven NASDAQ Composite finished at 7204.60, up 1.30%. It is still holding on to a 4.40% gain for the year.
Last week, the Federal Open Market Committee held the funds rate at a target of 1.5 percent to 1.75 percent, as expected. The committee noted that “overall inflation and inflation for items other than food and energy have moved close to 2 percent.” The Fed also noted some improvements in the economy, saying, “business fixed investment continued to grow strongly.”
The committee approved the decision to hold rates steady unanimously, though it has publicly disagreed about how aggressive the path forward should be. Multiple officials are scheduled to speak publicly in the coming days.
The Fed offered no hints as to the pace of future hikes which many investors have placed at two. The next rate hike is widely expected in June. The second could come in either September or December.
Helping to hold the number of rate hikes at two was Friday’s disappointing U.S. Non-Farm Payrolls report. The headline number came in below expectations, the unemployment rate hit an 18-year low, and Average Hourly Earnings offered little evidence that inflation is out of control.
Forecast
Stocks were muted last week by the Fed’s decision and the weak, but consistent jobs data. While the Fed left interest rates unchanged as expected, it also acknowledged the presence of inflation which tends to weigh on stock prices. The jobs data was weaker than expected, but consistent. It was also not as exciting as last year’s robust numbers.
With earnings season winding down, stock market investors will be searching for a new catalyst to drive share prices higher.
According to Edward D. Jones & Co., L.P., “81% of S&P 500 companies have reported first-quarter earnings, with results on pace to be the strongest since the third-quarter of 2010. Particularly encouraging is the 8.5% average revenue growth, the strongest increase in sales since the third-quarter of 2011, reflecting an improving economic backdrop and rising confidence/investment. Looking ahead, expectations are for 19.5% profit growth in 2018, setting a strong foundation for the ongoing bull market.”