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Strong beginning to the Q1 earnings season

April 2018

Strong first-quarter earnings reports provided a boost for investors who have been distracted by ongoing political developments and concerns over possible trade wars. Of the companies that have announced their first-quarter earnings so far, 78% have exceeded their estimates. Having grown by 2.9% year on year in the final three months of 2017, US economic growth lost some of its impetus in the first quarter of 2018, expanding by 2.3%.

  • Energy was the best-performing sector during the month
  • The FOMC appears increasingly optimistic towards the economic outlook
  • Inflation picked up

Strong first-quarter earnings reports provided a boost for investors who have been distracted by ongoing political developments and concerns over possible trade wars. The World Trade Organisation (WTO) warned that global economic growth and confidence have been “tilted to the downside” by the looming trade war generated by President Trump’s introduction of tariffs on key imports. The WTO predicts global trade volumes are set to expand by 4.4% this year, compared with 2017’s growth of 4.7%.

“US economic growth lost some impetus in the first quarter”

Of the companies that have announced their first-quarter earnings so far, 78% have exceeded their estimates. Companies in the information technology sector performed particularly strongly, followed by health care. In comparison, first-quarter earnings reports from the telecommunications and utilities sectors were relatively disappointing.

In terms of share-price performance, the best-performing S&P 500 sector in April was energy by some considerable margin, boosted by a favourable supply/demand backdrop. Utilities and consumer discretionary stocks also performed well. In contrast, the worst-performing sectors during the month were consumer staples, industrials, and telecommunications. Over April as a whole, the Dow Jones Industrial Average Index rose by 0.2%, the S&P 500 Index climbed by 0.3%, and the Nasdaq Index ended the month largely unchanged. 

Having grown by 2.9% year on year in the final three months of 2017, US economic growth lost some of its impetus in the first quarter of 2018, expanding by 2.3%. Activity was dampened by slower growth in consumer spending. The International Monetary Fund (IMF) has forecast economic growth for the US of 2.9% in 2018 and 2.7% in 2020. 

Attitudes amongst Federal Reserve (Fed) policymakers towards the US economy appear increasingly optimistic, according to the minutes of their March meeting.  Nevertheless, central bank officials remain uneasy about the mounting trade tensions between the US and China. Looking ahead, the Fed’s outlook appears broadly optimistic, and officials agreed that further tightening – perhaps steeper than previously anticipated – would be necessary as inflation returns to its 2% target. During the month, Fed Chair Jerome Powell said that, if the US economy remains on its current path, “further gradual increases in the federal funds rate will best promote the goals” of a strong labour market and a stable inflationary backdrop. Inflation – as measured by the core personal consumption expenditures index – picked up, rising at an annualised rate of 1.9% in March, compared with February’s rate of 1.6%.


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