PAS Weekly Commentary

Entering Earnings Season on a Positive Note

Wall Street advanced for the second week in a row, with the Nasdaq (+1.8%) touching a new record and the S&P 500 (+1.5%) hitting its best level since the big drop in early February. The Dow Jones Industrial Average (+2.3%) outperformed its peers, returning to positive territory for the year, but the small-cap Russell 2000 (-0.4%) struggled.

Stocks started the week on a positive note, rallying on Monday and Tuesday, but sold off on Wednesday after the White House escalated its ongoing trade dispute with Beijing, publishing a new list of tariffs. This round of duties is the largest yet, calling for a 10% tariff on $200 billion worth of Chinese goods, but it won't be official for at least two months. As it did with earlier tariffs, China promised to retaliate.

Meanwhile, NATO leaders held a two-day summit in Brussels this week. President Trump dominated the headlines, criticizing Germany for approving a major gas deal with Russia and taking a hard stance on increased military spending. Member states recommitted to a military spending target of 2% of GDP by 2024, prompting Mr. Trump to verbally confirm his commitment to the alliance.

The U.S. president then jetted to the UK for a meeting with Prime Minister Theresa May. Before the meeting, Mr. Trump suggested that Ms. May's Brexit plan may prevent the U.S. from entering a bilateral trade deal with the UK, but he walked back those comments in a latter press conference, reaffirming the leaders' "special relationship."

Back on the home front, West Texas Intermediate crude futures tumbled from a three-and-a-half year high on Wednesday, plunging 5.0% in their worst daily performance in over a year. Investors shrugged off a bullish inventory report -- which showed a huge drop of 12.6 million barrels for the week ended July 6 -- and instead focused on resurgent Libyan supply and increased June output for Saudi Arabia.

The energy sector, which is sensitive to crude prices, finished behind the broader market, but still added 0.8%. Eight of eleven spaces finished the week in the green, with information technology (+2.3%), consumer discretionary (+2.1%), and industrials (+2.2%) being the top performers. Utilities (-1.2%), telecom services (-1.6%), and real estate (-0.8%) were the three decliners.

In corporate news, big banks JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) unofficially kicked off the second quarter earnings season on Friday with mixed results; JPMorgan and Citigroup beat earnings estimates, but Wells Fargo missed. The financial sector lost 0.5% on Friday, but still finished the week with a gain of 1.1%.

Elsewhere, 21st Century Fox (FOXA) lost 4.0% on Wednesday following reports that Comcast (CMCSA) may forego countering Disney's (DIS) offer for Fox's entertainment assets and focus on upping its bid for British media company Sky instead; Broadcom (AVGO) tumbled 13.7% on Thursday after agreeing to acquire software company CA Tech (CA) for approximately $18.9 billion in cash; and AT&T (T) lost 1.7% on Friday after the Department of Justice appealed the company's acquisition of Time Warner.

In the bond market, U.S. Treasuries moved lower in another curve-flattening trade this week, bringing the 2-10 spread down two basis points to 26 bps -- its lowest level in more than a decade. The yield on the benchmark 10-yr note ticked up one basis point to 2.83%, while the yield on the 2-yr note climbed three basis points to 2.57%.

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S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Indices are unmanaged and one cannot invest directly in an index. Each company’s security affects the index in proportion to its market value. NASDAQ Composite Index is a market value-weighted index that measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market. Dow Jones Industrial Average is a widely-used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials, but also includes financial, leisure and other service oriented firms. Data and rates used were indicative of market conditions as of the date shown and compiled by Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. Past performance is not a guarantee of future results. Russell 2000 Index measures the performance of the smallest 2,000 companies in the Russell 3000 Index of the 3,000 largest U.S. companies in terms of market capitalization. MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. Chicago Board Options Exchange Volatility Index (VIX) tracks the expected volatility in the S&P 500 Index over the next 30 days. A higher number indicates greater volatility.

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2018-62991 (Exp 10/18)