Weekly Investment Newsletter
By: Kevin Dombrowski
Past performance is not an indication, predication or guarantee of future results.
Weekly Update
On Thursday, the Dow Jones Industrial Average increased for three consecutive days, the first time in over a month. Additionally, many other large domestic stock indexes rebounded well this week. On Friday, markets opened lower due to reignited trade war fears as the Trump administration asked the U.S. Trade Representative to consider an extra $100 billion in Chinese goods to face tariffs. China’s commerce reacted saying it will respond with countermeasures if needed.
Most investors believe that although a trade war is unlikely , it could still happen.  As an investor, you can expect the market to remain in a tug of war the next few weeks as the US and China negotiate trade solutions. Additionally, the U.S. economy added just 103,000 new jobs in March , which was less than Wall Street’s forecast of 170,000. Still, employment still shows the tightest labor market in nearly two decades. 

First Quarter Earnings’ Surge
Boosted by the tax overhaul and the strengthened global economy, S&P 500 firms are forecasted to report profit growth of 17% in the first quarter of 2018 compared to one year ago. With the recent volatility and the market downturn in February and March, the difference of this coming earnings season and those in recent past is that many stocks now trade at lower valuations. This means they may gain more if earnings turn out to be expected. The recent increase in markets this week may diminish the expected returns of companies beating Wall Street earnings’ estimates. During the five years through the end of 2017, companies beating their quarterly earnings’ estimates rose 1.2% on average from two days before the report to two days after.

A new way to IPO
Spotify, a music streaming service, went public this week and closed their first day at $149, making the company worth $26.5 billion. What is amazing about this, is that Spotify directly listed , as opposed to going the traditional route of hiring an investment banker who takes care of all steps prior to the debut, including setting an opening price. In a direct listing, a company’s stock price is determined by supply and demand of buy and sell orders collected from the New York Stock Exchange. This is a big deal because it’s a cheaper way for companies to IPO, and it may be a preferred model for AirBNB and Uber, who are set to go public later this year.

A future model for America
The Wall Street Journal wrote a fascinating article on Elkhart Indiana . In 2009, the metropolitan area of Elkhart – with over 110,000 workers – was a scene of an industrial town that never found its footing after manufacturing jobs left for cheaper labor overseas. However, from 2009 (with unemployment around 20%) to today (with unemployment close to 0%), it had a miraculous comeback. Also, average earnings have increased by 30% over that same time. What happened? First, demand for RVs increased, and Elkhart happens to be a large producer of these vehicles. Second, with various policies on the federal and state levels encouraging businesses to manufacture there, it has created an environment that many companies were drawn to. This may be a sign of a resurgence across America as a manufacturing powerhouse, and Wall Street has taken note. 
MainLine Private Wealth 308 E Lancaster Avenue Suite 300 Wynnewood PA 19096