OREANDA-NEWS. April 26, 2016. West Texas intermediate crude oil shrugged off last week’s production freeze failure in Doha by climbing \\$3.37 to \\$43.73 a barrel last week, its highest price since early last December. Further evidence of declining production in North America and several supply disruptions have helped to stabilize the price, and investors are increasingly looking beyond the current supply overhang and anticipating a more balanced market in the months ahead. Energy stocks responded in-kind as the XLE rose 5.5 percent last week, far outpacing the modest 0.5 percent gain in the S&P 500, and has climbed 30 percent from its January low.

Financials are another sector that has recently perked-up after a difficult start to the year. The sector gained 2.8 percent last week and it has risen 20 percent from its February low. The KBW Bank index climbed 5.2 percent. Stronger economic data and expectations of a slower Fed have pulled inflation expectations and interest up from their lows, raising hopes of a more favorable operating environment for financials.

The ten-year note yield rose 13 basis points on the week to close at 1.89 percent. That is still well below where it started the year at 2.24, but it is well above its low of 1.63 on Feb. 11, the day oil bottomed. The two-year note also hit its low yield for the year that day, at 0.64 percent. Last week it rose 10 basis points to 0.84 percent, resulting in a modest steepening of the yield curve. Treasury inflation protected security breakeven rates have been rising as well, climbing 10 basis points last week to 1.65 percent, after falling as low as 1.18 percent on Feb. 11.

Can the Recent Positive Sentiment Continue This Week?   

These moves are coming in response to diminishing concerns that global economic growth is slowing. But that sentiment will get tested this week. The economic calendar is quite full. At the top of the list is the Fed meeting on Tuesday and Wednesday. There is no expectation of any change in policy, but rather the Fed’s meeting statement will be scrutinized for any indication of its sentiment for the next rate increase, possibly as early as June, although even those odds are low.

Several Fed officials have cautioned that investors may be too complacent about the pace of future rate increases, so what the Fed has to say will be watched carefully. The performance of the economy in the year’s first quarter gets its first report card this week as well. According to Bloomberg, the consensus is estimating just 0.7 percent growth. The components of that performance, in particular consumer spending, will be most important. Weakness in capital spending and exports is expected. But evidence the consumer has at least hung in there would be welcome, especially after soft personal consumption readings in January and February. The March reading on personal consumption and spending is scheduled for Friday. New and pending home sales are also on this week’s calendar, as is the March report for durable goods.

First Quarter Earnings Pick up the Pace

First quarter earnings reports accelerate this week. Topping the list is Apple, but also expected to report this week are Facebook, Amazon, Exxon Mobil, Chevron, Amgen, Gilead, Boeing and United Technologies, among others. Roughly one-quarter of the S&P 500 has reported so far, with results projecting to a 9 percent decline compared to last year. No surprise that weakest group has been energy, which is expected to show an actual loss for the quarter, followed by materials. Only telecom, consumer discretionary and healthcare are expected to report actual earnings growth.

Certainly not everyone is convinced that the global economy has turned a corner and that higher oil and interest rates are sustainable. Corporate guidance will take on added importance this reporting season as a window into the rest of the year.

Important Disclosures:       
The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill.

Energy Select Sector SPDR XLE offers broad, inexpensive exposure to the energy sector. This exchange-traded fund invests in every energy company in the S&P 500 and weights its holdings by market capitalization. This includes integrated oil and gas producers, firms that engage in oil and gas exploration and production, companies providing oil and gas equipment and services, and those in the refining and marketing segment of the value chain.

The KBW Bank Sector (BKX) is a capitalization-weighted index composed of 24 geographically diverse stocks representing national money center banks and leading regional institutions. BKX is based on one-tenth the value of the value of the Keefe, Bruyette & Woods Index (KBWI).

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.

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