After last week, where stocks recorded solid gains and pushed all the major benchmarks into positive territory for the year, this week was relatively flat with a bit of volatility. Many experts believe that last week’s surge brought much of the stock market in line with fair value estimates.
By the end of the week, overall earnings for the S&P 500 grew by nearly 25% from one year ago, with nearly four out of five beating Wall Street’s estimates.
Investors appear unconcerned with bond yields as they continue to increase with inflation. In fact, the 10-year Treasury note yield reached a
seven year high at 3.1%.
As bond yields increase, many bond prices will decrease. Additionally, stocks may continue to be increasingly volatile as we have seen so far in 2018.
Small Stocks Soar
Small stocks, represented by the Russell 2000 index, soared in April and May, beating large cap stocks, represented by the S&P 500 index, by nearly 2.5%.
In fact, the Russell 2000 reached its highest level ever
on Wednesday. This is partially attributed to smaller companies receiving a larger boost from the recent corporate tax cuts, as they tend to pay higher effective tax rates on average.
Relative to global economies, many investors are currently looking to amplify their returns through US small companies, which many believe presently have better upside with less risk. Additionally, with trade winds in Europe and Asia, small US companies receive a smaller share of their revenue from outside of the US. With global trade risks, small stocks tend to be less affected.