We're only a few weeks into 2018, and stocks are showing quite a strong performance so far. Last week, major domestic indexes posted gains yet again, with all 3 up at least 5% this year. By Friday, the S&P 500 had added another 0.86%, and both the Dow and NASDAQ were up 1.04%. All 3 indexes hit new record highs at least once during the week.
In addition to the solid performance for U.S. equities, we're also experiencing synchronized global growth. European and Asian stocks grew last week, and China's growth data was more positive than expected. Overall, international stocks in the MSCI EAFE added a healthy 1.24% last week. Year to date, the MSCI is up 4.95%.
What happened last week?
Two key topics drove conversations: corporate earnings and a government shutdown.
1. Corporate Earnings
In the U.S., corporate earnings season dominated much of the economic news as reports continue to show companies doing well. For organizations that released their 4th-quarter results, 79% beat earnings projections and 89% exceeded sales estimates.
2. Government Shutdown
The Federal government shut down on Saturday morning, January 20th, after the House and Senate failed to pass a bill to extend funding. This shutdown is the first since 2013.
How did these occurrences affect the markets?
While a potential shutdown loomed last week, overall, investors had little reaction to its possibility. Volatility did increase last week as investors waited to see whether or not the House and Senate would reach a compromise on government funding. However, the solid news from corporate earnings seemed to outweigh concerns about the Federal government. Rather than focusing on drama in Washington, many traders are paying attention to the strength in U.S. corporations' fundamentals.
As more data unfolds, we will continue to monitor the relationship between government policy and economic performance. As always, if you have any questions about how current events and market developments may be affecting you, contact us any time.
Wednesday: Existing Home Sales
Thursday: New Home Sales, Jobless Claims
Friday: Durable Goods Orders, GDP
Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5- year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
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The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
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The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
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