It was another solid week for US stocks with a host of positive earnings reports and upbeat economic data giving a nice boost to prices. Eight out of the ten sectors in the S&P 500 were positive on Friday; the health-care and financial sectors lagging behind.
The reason stocks are not entirely green across the board, particularly in the health-care sector, is thought to be associated with Thursday’s passage in the House of a revamped health-care reform bill. There is still a sizeable amount of lingering political uncertainty as a result of the bill’s initial success. Next up is the Senate, where passing the bill might prove to be more of a challenge.
Regardless of future policy change, company earnings are robust, and this is probably the single biggest driver of the market. Analysts anticipated a 9.1% rise in corporate earnings for 2017 from the year prior, and with over 400 companies reporting, earnings are currently on track to rise 13% YOY, according to Factset.
Technology companies in the S&P 500 and the Nasdaq 100 have seen the most growth since last year. Currently, the S&P 500 technology sector is up about 17% from a year ago, which is quite impressive.
In response to the strong tech sector, Ketu Desai from i-squared Wealth Management said, “in an economy with 2% or 2.5% growth, these companies are growing at double digits. They’re going to be the engines of growth for the economy.”
But they are not the only sources of growth for the market. April’s jobs report released on Friday from the US Bureau of Labor Statistics showed a sharp increase from last month with 211,000 new jobs created in April. Economists were expecting the number of new jobs to be around 185,000. Unemployment levels also defied expectations as they sunk to a fresh new low of 4.4%, not seen since before the financial crisis in 2007.
“It calms the folks that thought we were headed toward a labor market slowdown,” said Sameer Samana, global quantitative and technical strategist at Wells Fargo Investment Institute.
Strong jobs reports often lead the Fed to tighten monetary policy, because the overall economy is growing and seems healthy enough to withstand rising interest rates. When this happens, non-interest-bearing assets like gold and stocks can often lose their appeal.
Gold has had a rocky start to the month. Gold fell through support at $1,250, but is still well above the key level of $1,200. The long-term case to own gold seems to still be intact.
For other commodities, crude oil rebounded from a new of 2017 that was formed on Friday. Concerns about oversupply and the lack of demand have been unequivocally plaguing the oil market. When oil has large negative price movements and spills over into the stock market, it usually adds downward pressure for stocks, but since crude rebounded it actually aided the energy sector and stocks in general on Friday.