Is a Shutdown Ahead?

U.S equity markets moved slightly higher last week and the S&P 500® Index returned 0.8%. Industrial stocks, led by railroads, turned in the best performance for the week.  However, oil prices slid during the week from $53.18 at last week’s close to $49.62 on Friday.  This took a toll on energy companies and they were the worst performing sector last week.  In economic news, U.S. Treasury Secretary Steven Mnuchin announced that plans to reform taxes have progressed.  If passed, the plan will be the biggest overhaul to the tax code since President Ronald Reagan.  Overseas, voters in France selected two candidates for the closely watched presidential runoff. Emmanuel Macron, a pro-growth centrist and nationalist Marine Le Pen were selected.  Looking ahead to this week, investors have much to watch.  President Trump is expected to announce his tax reform plan this week and investors will pay close attention to the Congressional decision on a spending bill.  The U.S. government will run out of money to pay bills on April 29 if a decision is not reached.  President Trump increased the odds of a government shutdown by attaching a border wall funding to the bill, which Democrats oppose.  Finally, 194 companies in the S&P 500 are slated to release quarterly earnings results and investors hope for good news!

The S&P 500® Index was up 0.8% for the week. The top-performing sectors in the S&P 500® Index included Industrials (2.0%) and Consumer Discretionary (1.9%), while bottom-performing sectors included Telecommunications (-1.6%) and Energy (-2.1%). In the fixed-income market, the 10-year Treasury yield was even during the week, ending at 2.2%.

We continue to seek those companies possessing identifiable catalysts, and focusing on those stocks with favorable odds.

Upside Surprise

JP Morgan Chase & Co. (JPM) is a financial holding company that provides various financial services worldwide. Founded in 1823 and headquartered in New York, New York, JPM operates it business in several segments including investment banking, commercial banking, asset management services, retail finance services, as well as credit card and auto services.

JPM emerged from the financial crisis as one of the few financial institutions with a solid balance sheet. JPM demonstrated its superior financial position by passing the Federal Reserve stress tests and also obtaining approval to buyback shares and increase its dividend. Despite the headwinds of a low interest rate environment and a more onerous regulatory landscape, JPM is poised to gain market share as its weaker peers consolidate their businesses to improve their balance sheets.  We believe JPM has the potential to significantly surprise on the upside as economic conditions continue to improve for the banking industry.   For these reasons we have added JPM to our portfolio and believe it represents favorable odds for our clients.