INVESTMENT  MANAGEMENT  CORPORATION

VALUE
SAFETY
MOMENTUM

Probability of
Federal Reserve
increasing interest rates by 05/01-05/02 FOMC meeting

by 1/4%:  26%
by 1/2%:  0%

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CURRENT MARKET OUTLOOK

-04/16/18 update--next update Monday 04/23/18-

    Last week brought another week of positive and negative price swings in response to the latest news events regarding tariffs, likely Syria military action, and Presidential responses concerning prosecutors.  Select U.S. index weekly point changes were:  +427.38 Dow, +51.83 S&P500, and +191.54 for the Nasdaq.  The 10yr. treasury note rate rose +0.04 to 2.82%

    The Federal Reserves March meeting minutes showed confidence that the economy will continue to strengthen and require further upward adjustments to interest rates.

    Tariff concerns abated some after China's President Xi Jinping promised to open up the their financial industry along with reducing auto tariffs and dealing with intellectual property issues.

    Over the weekend, the U.S. notification to Russia of its limited and targeted attack kept Russia from making any immediate counter military action.

    This week's Q1 earnings reports from important bellwether companies will influence the week's market results.  The first week of Q1 earnings reports started well.  With 6% of S&P500 companies reporting so far, very strong earnings growth of 17.3% was reported.  Of those, 70% reported positive earnings-per-share surprises and 73% reported positive sales surprises.

    This morning's report that Retail Sales rose +0.6% in March beat consensus expectations, but does not reflect the level of acceleration that had been expected for Q1 when considering the weak numbers reported for January and February.  We think the second quarter will produce consistently better results.          

    A number of important economic data reports will influence this week's markets: [those with the most market moving potential are highlighted]  Monday- Retail Sales, Empire State Manufacturing Index, Business Inventories; Tuesday- Housing Starts, Industrial Production; Wednesday- Beige Book, Petroleum Reserves; Thursday- Philadelphia Fed Business Outlook Survey, Leading Indicators, Jobless Claims; Friday- Baker-Hughes Rig Count.

    Our technical system's score for the market's valuation fundamentals remains at +8 (range 0 to +10), which is in the "positive" range for the future.  Please note that this technical score does not incorporate any of our measures for positive/negative market psychology, which can be highly volatile.  Last week, it fell into the "negative" range for the near-term.  (As always, the near-term direction of the market will be affected by the outlook for Federal Reserve action, the favorableness of economic data releases, earnings releases, analysts' forecast updates, and finally international events and governmental action.)

The "Portfolio Detail and Activity" section of our website is updated on the day after any trading activity.

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Select Economic Data Releases:

 Gross Domestic Product

     The final 2017 Q4 GDP report beat consensus improving to +2.9%.  The second estimate for Q4 GDP matched consensus calling for it to be revised to +2.5%.  The 1st estimate for Q4 GDP showed solid growth at +2.6%.  --The third estimate for Q3 GDP eased slightly to +3.2%, which is still strong.  The second estimate for Q3 GDP improved to +3.3%.  The first estimate of Q3 GDP rose +3.0% with strong spending.  The final estimate for Q2 GDP estimate improved to 3.1% confirming a strong quarter driven by improving 3.3% increase in consumer spending.  The second estimate for Q2 GDP improved to +3.0%.  The first estimate of Q2 GDP showed improvement to +2.6%.  The third estimate of Q1 GDP was raised to +1.4%.  The second estimate for Q1 release improved to +1.2%.  The first estimate for Q1 growth was much weaker than the consensus forecast at +0.7%.--

Employment Data

     March employment hires reported were a modest 103,000, which was well under the consensus forecast.  --February's employment report showing a very strong 313K hires with tame wages greatly exceeded analysts' consensus expectations.  The unemployment rate remained 4.1%.  January's employment data showed a strong gain above consensus at 220,000.  Consensus had called for 170,000 new hires.  Year-over-year earnings growth measured +2.9%.  --December's employment report came in below consensus at 148,000 new hires, but still remains at a healthy level.  --November employment data showed good growth well above consensus with 228,000 new hires.  October employment growth of 261K rebounded from September with the Unemployment Rate falling to 4.1%.  September employment reflected the effects of hurricanes Harvey and Irma pushing employment down -33K, which was well below expectations for a weak report.  The Unemployment Rate fell to 4.2%.  August employment data came in below consensus, but at 156,000 is still good and showed a surge in manufacturing hires.  July employment came in above consensus at +209,000, with the Unemployment Rate ticking down to 4.3%.  June employment data handily beat consensus with 220,000 new hires and the Unemployment Rate ticking down to 4.4%.  May employment data was weaker than had been forecasted, with 138,000 new jobs being created.  The consensus had been for 200,000 new hires.  April employment data showed a strong rebound that was well above consensus.--

Retail Data

     Today's March Retail Sales  report rose +0.6% and was the first decent above consensus gain for the Q1.  --Retail Sales for February declined -0.1%, which was again weaker than consensus.  Retail Sales for January fell -0.3%, which was well below consensus expectations for post-holiday consumer spending.  Retail Sales for December rose +0.3% finishing a good holiday shopping season for 2017.  November Retail Sales up +0.8% were strong to start off the holiday shopping season.  October Retail Sales data that showed a small +0.2% increase was near consensus.  September Retail Sales will be reported.  August Retail Sales down -0.2% were negatively impacted by the hurricane weather.  Past months were also revised lower.  July Retail Sales gain at +0.6% exceeded expectations.  June Retail Sales revised up to +0.3% from -0.2%. May Retail Sales data came in below consensus at -0.3%.  The +0.4% April Retail Sales report came in below expectations.--

Housing Data

     This week, March Housing Starts will be released on Tuesday.  February Existing Home Sales at 5.540M were up +3.0% beating consensus.  New Home Sales at 618K were near consensus and showed prices gain traction.  February Housing Starts at 1.236M was below the consensus forecast.  --January new home sales came in below consensus at 593K, but the level of New Permits and Starts indicate the overall near-term positive trend will resume.  January Existing Home Sales fell -180K to 5.380M, which was below consensus due to increasing supply and lower prices.  January Housing Starts at 1.326M remained seasonally strong.  December Existing Home Sales were 5.57M and New Home Sales at 625K continue at a solid pace.  December Housing Starts for December were below consensus at 1.192M, but New Permits remained very strong at 1.302M.  November housing data showed Housing Starts at 1.297M, Existing Home Sales at 5.810M, and New Home Sales at 773K, which were all strong and well over consensus.  October's strong New Home Sales at 684K was well above consensus.  October Existing Home Sales report also came in above consensus at 5.39M.  October Housing Starts showed a strong above consensus increase to 1.29M.  September New Home Sales at 667K beat consensus rising to the highest level since 2007.  September Housing Starts at 2.127M was below consensus, but New Permits at 1.215M showed a good increase for single family homes.  September Existing Home Sales at 5.39M beat consensus.  September New Home Sales will be released this Wednesday.  August New Home Sales at 560K came in a little below consensus.  August Housing Starts at 1.18M and Building Permits at 1.3M were solidly above consensus and August Existing Home Sales at 5.35M were lower due to weakness caused in hurricane affected markets.  July New Home Sales at 571K and Existing Home Sales at 5.44M came in below consensus forecasts.  July Housing Starts at 1155K and Building Permits at 1223K were below expectations.  During June, 610K New Home and 5.52M Existing Home Sales were reported.  Both were near consensus.  Earlier reports for June Housing Starts of 1215K and Building Permits of 1254K beat consensus.  May Existing Home Sales of 5.62M and New Home Sales of 610K were both above consensus.  May Housing Starts at 1092K and Building Permits at 1168K were lower than had been forecasted.  New Home Sales for April fell -1.8% and April Existing Home Sales fell -2.3% due mostly to tight and falling inventories in parts of the country.  Both were below consensus.  April Housing Starts came in below consensus at 1172K, with Building Permits also below consensus at 1229K.  March New Home Sales of 621K beat consensus.  March Housing Starts at 1215K and Existing Home Sales at 5.71M both beat consensus.  There were 1260K March Building Permits issued.--  

Leading Indicators

    This week, March Leading Indicators will be released on Thursday.  February Leading Indicators despite the recent stock market weakness rose +0.6% indicating good economic growth ahead for 2018.  --January Leading Indicators rose +1.0% indicating that good economic growth will continue.  December Leading Indicators rose +0.6% signaling further economic growth ahead.  The November Leading Indicators release shows a reasonably healthy +0.4% rise.  October Leading Indicators, up +1.2% showed a strong above consensus increase.  September Leading Indicators report showing a -0.2% decline was impacted by recent hurricane related job losses.  August Leading Indicators rose a solid +0.4%.  July Leading Indicators were in-line with expectations at +0.3%.  June Leading Indicators measure came in slightly above consensus at +0.6%.  May Leading Indicators up +0.3% matched the consensus forecast.  The April Leading Indicators report showed a +0.3% rise, which was close to the consensus forecast.  March Leading Indicators beat consensus at +0.4%.--       

Inflation

    Last week's reports for March Producer Price +0.3% "headline" and "core" inflation was higher than consensus, but the acceleration was modest.  March Consumer Prices fell -0.1% due mostly to lower gasoline prices, but the +0.2% "core" gain matched expectations.  --February inflation for Consumer Prices were reported to have risen +0.2%, with core prices up a tame +1.8%.  Producer Prices also rose +0.2% at the overall and core levels.  January Consumer Prices showed a 0.5% increase with core price up +2.3%.  Year-over-year it rose 2.2%.  Producer Prices headline number rose +0.4%, with core prices also up +0.4%.  December inflation data showed December Producer Prices both headline and core declining -0.1% for a net year-over-year +2.6% change.  December Consumer Prices headline number rose +0.1% with core prices up +0.3%.  The year-over-year change was +2.1%.  November inflation data showed higher Producer Prices inflation up +0.4% with core prices rising +0.3%.  November Consumer Prices up +0.4% was offset by core prices showing a slight +0.1% gain.  October inflation data releases showed Producer Prices rising +0.4% at both the total and "core" levels and Consumer Prices rising +0.1% +0.2% for "core" prices.  This brings the Producer prices annual rate of increase up to the 2% level targeted by the Federal Reserve.  The annual rate of increase for Consumer Prices is now +1.8%.  September inflation data showed Producer Prices rising +0.4 and Consumer Prices rising +0.5 reflecting a spike caused by food and energy price rises due to the hurricanes.  September core prices still show little inflation rising +0.2 at the producer level and +0.1 at the consumer level.  August inflation data releases showed Producer Prices up +0.2% (core +0.1%) and Consumer Prices up +0.4% (core +0.2%).  July Producer Prices were reported to have fallen -0.1%, which was below consensus and July Consumer prices rose +0.1% matching consensus.  June Producer Prices at +0.1% (core +0.1%) and Consumer Prices with no change (core +0.1) showed as absence of inflation.  May Personal Consumption Expenses at -0.1% (core +0.1%) showed inflation remaining tame.  May inflation data remained low, with Consumer Prices falling -0.1% (core +0.1%) and Producer Prices up +0.3% (core 0.0%).  April Consumer Prices Rose +0.2% and Producer Prices rose +0.5%.--


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