Market Outlook – April 13, 2018

Wall Street Overcome Geopolitical Tensions

Thursday saw U.S. stocks closed with solid gains after being dampened by talks of an impending military attack on Syria. The tweets of U.S. President Donald Trump backtracking on plans to land missiles in the war-torn country eased tensions.

The Dow Jones Industrial Average surged 293.60 points (+1.2%), the Nasdaq Composite Index advanced 1% and the S&P 500 finished 0.8% higher. Wall Street had broad gains, with 24 of the 30 blue-chip stocks in the Dow Jones gaining together with 6 of the 11 primary S&P 500 sectors. Financials stocks were outperformed and the sector went up 1.8%.

Financial Giants to Open Earnings Season

The financial giants of Wall Street take center stage on Friday to report their first-quarter earnings and provide a view of what’s ahead in the coming days. Hopes are high due to the estimated 17% increase in corporate profits overall for the first-quarter of 2018.

The banking industry is likely to benefit from tax cuts, rising interest rates and a generally positive outlook for economic growth. Citigroup (C), JP Morgan Chase & Co. (JPM), PNC Financial Services Group Inc. (PNC), and Wells Fargo & Co. (WFC) will be presenting their respective reports.

Metals Tariffs Affecting U.S. Farmers

According to Reuters, some farmers and agricultural firms in the U.S. are scrapping purchases and holding off on expansion plans due to the increased costs of equipment and infrastructure. The price increase is the result of the imposition of tariffs on steel and aluminum imports.

As an example, A&P Grain Systems, a seller of the storage bin Strom, wanted to buy with a neighboring farmer only to find out the price was jacked up 2 days after the aluminum and steel tariffs took effect on March 1.

The impact of rising steel prices on agriculture is beginning to emerge as a consequence of aggressive protectionism in a global economy. Farmers fear that the forthcoming retaliatory tariffs by China could hurt them even more.

Task Force to Review U.S. Postal Service

U.S. President Donald Trump ordered the creation of a task force on Thursday to look into the U.S. Postal Service’s (USPS) business model. Trump is claiming that the USPS is having financial difficulties due to deliveries for Amazon.com Inc. (AMZN).

“The USPS is on an unsustainable financial path and must be restructured to prevent a taxpayer-funded bailout,” said the order, signed by Trump. It said the Postal Service had lost $65 billion since the recession period from 2007 to 2009 recession. The White House has yet to present evidence to validate its claim.

AT&T Defends Deal with Time Warner

An economist, Dennis Carlton, representing AT&T’s (T), argued in court on Thursday that the company’s proposed merger with Time Warner Inc. (TWX) would be favor consumers. He said customers would derive savings because the merger of a pay-TV provider and a movie & TV giant would result in a more efficient company.

Carlton was refuting the government’s claim, through another economist Carl Shapiro, that the $84.5 billion deal would cost American consumers some $286 annually in higher prices. The government filed a lawsuit last November to block the deal.

U.S. District Judge Richard Leon will rule to stop the merger if it shows pay TV consumers will pay higher prices or the deal threatens the development of online video.

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