Stocks continued their advance on generally strong earnings reports this week despite the GDP report showing a slow first quarter economy. The S&P 500 rose 1.51%, the Dow gained 1.91%, and the NASDAQ added 2.32%. On Tuesday, the NASDAQ posted record highs as it closed over 6,000 for the first time.
On Friday, April 28, we learned that first quarter GDP increased a modest 0.7%, lower than the reported consensus expectations of approximately 1%. Oil drilling and housing performed well, but consumer spending fell, largely due to poor auto sales and lower utility bills. Consumer spending, the largest segment of our economy, rose by only 0.3%.
While this growth is slower than the 2.1% last quarter - and the lowest we've experienced in three years - the picture is likely not as negative as it may seem at first. Not only did mild weather affect consumer spending on heating, but the government has also acknowledged its challenges accurately calculating data for first quarter GDP.
In addition to these GDP readings, a number of other events and data releases contributed to market performance this week.
Corporate Earnings Were Largely Positive
Thus far in the first quarter, 79% of reporting companies published strong profits. In particular, consumer discretionary companies and commodity producers reported robust earnings while phone services and real estate investment trusts had weaker results.
Trump Announced Tax Plan
President Trump outlined his new tax proposal, including plans to cut corporate taxes to 15%. Individual tax rates would fall to 10%, 25%, and 35% if Congress adopts the President's plan.
North American Trade Experienced Tension
On Wednesday, April 26, reports that the U.S. may pull out of NAFTA created concern in financial markets. By Thursday, however, markets calmed after President Trump said he would agree to requests from Canada and Mexico's leaders to renegotiate the decades-long trade deal. As these negotiations continue, two controversies lay in the background:
1. U.S. dairy farmers' claims that Canadian action concerning milk imports violates the trade agreement.
2. A new tariff of up to 24% on Canadian softwood lumber that President Trump announced last week.
Finding the right solution for the negotiations is important to the U.S., Canada, and Mexico. NAFTA affects a significant portion of each country's economy, including industries such as farming, automotive, and energy. Trade with the two countries accounted for approximately $584 billion in U.S. exports in 2016.
French Elections Moved Markets
Political newcomer Emmanuel Macron emerged as the frontrunner in the French election while ultra-right nationalist Marine Le Pen's chances of winning the May 7 final election appear to be fading. After the first round election results eased investor concerns about a possible Le Pen victory, the markets reacted positively with $2.4 billion flowing into European equities by April 26. Asian equities also rallied.
With Congress avoiding a shutdown last week, the markets should focus this week on:
- Earnings reports
- Construction spending
- April auto sales
- Manufacturing data
- Federal Reserve meeting on Wednesday
By Friday, most remaining S&P 500 companies' earnings reports will be in, including Apple, Facebook, and Pfizer. Looking ahead, we will watch for what economic stories emerge from the data we receive, including the upcoming jobs report. For now, despite the first quarter's initially slow GDP growth, expectations continue for 2.5% growth in 2017.
Quote of the Week
"The winds and waves are always on the side of the ablest navigators."
Golf Tip of the Week
Avoid a Loose Swing
When you're told to swing "nice and easy," a common problem can emerge: You forget to go after the ball. The result? You become too relaxed in your swing and lose force. You can hit the ball better and avoid a loose swing with the following practice:
First: Understand What a Loose Swing Can Do
Solid contact requires decisiveness in your swing. Without strong grip and force, you get out of synch and lose precision as you move through the impact zone.
Second: Hit the Ball in the Rough - Half Swing
You can practice your swing by hitting your ball out of the rough. When doing so, you have to be more aggressive in order to clear the heavy grass. To nail that shot, you end up bracing for impact to stabilize your swing. This is the goal you need to reach to also hit a solid shot in the fairway: a feeling that your arms and torso connect in unison. You can practice this swing:
- At address: You should feel pressure in both armpits, and your biceps should press against your chest.
- As a drill: Tuck your shirtsleeves under your arms, keeping your arms pinched against your body. Practice making half swings with this stance, holding your pinch.
Third: Hit the Ball in the Rough - Full Swing
After you practice your half swing, try to recreate that feeling in your full swings. The rough will reveal the quality of your swing: If your arms disconnect from your body and you don't stay strong, you will make awful shots.
Continue to practice your full swings until you hit the ball consistently strong out of the rough - and then watch your improvements unfold in the fairway, too.
Tip courtesy of Golf Digest
Financial Question of the Week
What Makes a Gift Taxable?
When you give gifts of property or money to people, you may need to pay a gift tax to the IRS. Here are some points to consider.
Are all gifts taxable?
Generally, no. While you should keep in mind that the gift tax could apply to you, most gifts that you give do not trigger the gift tax. Here are nontaxable gifts:
- Gifts that are worth less than the annual exclusion amount for the applicable tax year
- Tuition or medical payments you made on behalf of another person to an education system or medical facility
- Gifts to your spouse
- Gifts to political organizations
- Gifts to charities
What is the annual exclusion amount?
The annual exclusion amount for 2016 is $14,000. You typically won't have a gift tax for any gift you give another person that is under this amount.
Does the person who receives a gift pay a gift tax?
Typically, no; they aren't responsible for paying a tax on the gift.
If you gave a taxable gift, file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. Other details may apply, and you can find more information on the IRS website.