US Stocks Ended Feb. 23, 2018

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After selling-off to begin the holiday-shortened week, stocks roared higher to finish the week in the green, as concerns subsided over the pace of future interest rate increases. Investors continue to weigh the accelerating pace of economic growth and another strong earnings season against the prospects of higher inflation and interest rates. In economic news, new-home construction for January reached the highest level since October 2016, buoyed by a strong labor market and consumer confidence. In earnings news, a number of consumer stocks reported results for the fourth quarter. Shares of Walmart Inc. tumbled after reporting weak margins and execution issues within its e-commerce business. In addition to a weak quarterly report, fiscal year earnings and margin guidance were reduced by management as the world's largest retailer increases wages and investments in online infrastructure. Campbell Soup shares also moved lower after a disappointing quarterly report as organic growth remains elusive and 2019 looks to be a transition year due to the integration of a large acquisition. Information technology was the best performing sector, led by strong gains from Hewlett Packard Enterprise Co. and HP Inc., after both names topped analyst expectations and raised future guidance. With around 90% of companies reporting, 74% of names have topped estimates, higher than the 70% average over the past four years. In addition to more companies beating expectations than normal, forecasts for earnings estimates remained relatively flat in the three months leading into earnings versus an average drop of 4% over the past four years, as executives normally talk down expectations to create a lower bar to beat. The implication is that companies not only beat at a higher rate but also overcame a higher bar in the fourth quarter. Looking ahead to next week, Federal Reserve Chairman Jerome Powell will testify before congress. Investors will be focused on any clues about the pace of interest rate hikes. While bond yields do have an impact on prices and can provide a headwind, improving fundamentals in the economy and corporate profits provide the opportunity for future market gains even if bond yields rise.

Posted on Monday, February 26, 2018 @ 8:41 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.