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Weekly Update – April 13, 2018

  • Heavy news flow — slaughter in Syria, trade spats with China, political drama in DC and an ambivalent start to earnings season — drove a volatile week for markets. Nonetheless, stocks ended with decent gains. Escalating Middle East tensions sent oil prices to three-year highs. Gold regained its luster as signs of inflation emerged. The 10-year Treasury yield was unchanged at 2.8%.
  • Banks led earnings season, meeting expectations for 1Q18, yet investors sent shares lower on disappointing loan growth. Still, FactSet estimates the first quarter S&P 500 earnings growth rate may exceed 17%.
  • The University of Michigan Consumer Sentiment Index fell in April, its first decline since January, as respondents worried about the impact of President Trump’s trade agenda on the economy. Despite the drop, the index remains at elevated levels.
  • The consumer price index (CPI) fell in March but underlying inflation rose. Gasoline prices briefly fell, pushing the index down. Core consumer prices — excluding energy and food — rose 0.2%, reflecting higher costs for housing and medical care.
  • The producer price index (PPI), which measures the prices businesses receive for goods and services, increased 0.3% in March, well above expectations of 0.1%. Sharply rising food prices and continued service sector growth led to the surprise. After a 0.2% gain in February, economists took the result as a sign inflation pressures were building.
  • The Congressional Budget Office released its first projections for the U.S. economy and federal budget since Congress passed the $1.5 trillion tax overhaul and the $1.3 trillion spending bill. The CBO predicted that spending would push economic growth above 3% in 2018, but also that the budget deficit would jump to $804 billion in 2018 from $665 billion last year, and exceed $1 trillion starting in 2020.
  • House Speaker Paul Ryan announced he would not seek re-election and would retire at the end of his current term, stirring up a scramble in the GOP to replace him. Ryan’s departure heightens uncertainty about the coming midterm elections, as analysts of both parties say the House is up for grabs.

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