Monthly Archives: March 2019

Market Insights 3/29/2019

U.S. stocks added to a weekly advance to close the best quarter since 2009.

The U.S. dollar rested from a recent upward move, while gold and crude oil prices were higher.

The markets also rallied for the first quarter, with the DJIA jumping 11.2%, the S&P 500 Index was surging 13.1%, and the Nasdaq Composite soaring 16.5%.

The Markets…

The Dow Jones Industrial Average rose 211 points (0.8%) to 25,929

The S&P 500 Index gained 19 points (0.7%) to 2,834

The Nasdaq Composite advanced 60 points (0.8%) to 7,729

In heavy volume, 1.1 billion shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq

WTI crude oil increased $0.84 to $60.14 per barrel and wholesale gasoline was up $0.02 at $1.88 per gallon

The Bloomberg gold spot price traded $1.78 higher to $1,292.20 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was little changed at 97.25

Markets were nicely higher on the week, as the DJIA advanced 1.7%, the S&P 500 Index was up 1.2%, and the Nasdaq Composite gained 1.1%

Personal spending below estimates, PCE deflator misses forecasts

Personal income dipped 0.1% month-over-month in January, as was previously reported, and compared to December’s 1.0% rise. Personal spending gained 0.1% m/m in January, versus the Bloomberg estimate of a 0.3% ascent, and December’s unfavorably-revised 0.6% decline. The January savings rate as a percentage of disposable income was 7.5%.

New home sales ascended 4.9% month-over-month in February to an annual rate of 667,000 units, versus forecasts calling for 620,000 units and the upwardly-revised 636,000 unit pace in January. The median home price was down 3.6% y/y to $315,300.

Treasuries were mostly lower, with the yield on the 2-year note up 2 basis points (bps) to 2.26% and the yield on the 10-year note ascending 1 bp to 2.40%, while the yield on the 30-year bond dipped 1 bp to 2.81%.

Treasury yields mostly extended yesterday’s rise after seeing pressure and the U.S. dollar held onto a weekly gain, while the S&P 500 finished the quarter strong. Volatility persisted as global growth uncertainty festers, exacerbated by an inversion of the spread between the 3-month and the 10-year U.S. Treasury note yields that raised recession fears earlier in the week.

The final March University of Michigan Consumer Sentiment Index was adjusted higher to 98.4, from the preliminary figure and expectations of 97.8. The index was above February’s 93.8 level. The 1-year inflation forecast was 2.5% higher m/m, below February’s 2.6% number, and the 5-10 year inflation outlook rose to 2.5% from 2.3%.

Global markets rise as trade negotiations capture attention

European equities finished higher, with trade negotiation concerns in focus on the heels of high-level trade representatives from the U.S. and China meeting in Beijing, while market participants were still mindful of possible U.S. recession concerns that brought heavy pressure on global markets earlier in the week. The basic resources sector, which has a notable exposure to the Chinese economy, assisted the markets higher on the heels of U.S. Treasury Secretary Mnuchin sharing that U.S./China trade talks were constructive.

Prime Minister Theresa May’s withdrawal agreement, without an accompanying political declaration that would govern the future European Union/U.K. relationship, failed to be approved by Parliament for a third time, as an extended Brexit deadline nears. The euro was little changed and the British pound dipped versus the U.S. dollar, while bond yields in the region were mixed.

Stocks in Asia also finished higher following the U.S. market recovery yesterday and amid the cooling trade war concerns. Chinese stocks led the way as shares in mainland China surged, producing the highest quarterly returns among national markets. Investors continued to watch the slide of the 10-year Treasury yield, which hit its lowest level since December of 2017 this week.

Japanese equities rose as the yen moved lower versus the U.S. dollar, while the nation’s industrial production was in line with expectations m/m and its retail sales missed estimates for February.

Stocks erase last week’s stumble

After falling in the prior week, U.S. stocks pushed back to the upside this week, limiting the damage as the slowing global growth concerns that led to the tumble eased courtesy of suggestions that the U.S./China trade negotiations were seeing substantial progress, including on structural issues that have been a stumbling block. All but the communication services and utilities sectors posted gains for the week, overcoming economic data showing Q4 GDP growth was revised lower than expected and that the Consumer Confidence Index slumped in March. Volatility continued to rise as recession fears were stocked by the inversion of the 3-month and 10-year U.S. Treasury yields during the week. The U.S. dollar extended last week’s gains and the 10-year Treasury note fell to its lowest level since 2017 this week.

U.S. stocks resumed their uptrend after a short respite, but with the economy slowing, the yield curve inverted, and earnings likely negative for at least the first quarter, the risk of a pullback appears elevated. The first quarter was highly likely weak for both earnings and the economy overall; but it could be followed by at least a modest rebound in the second quarter if traditional seasonal patterns hold. Given the slowdown, the Fed is now forecasting no rate hikes in 2019, which suggests binary risks of either slower growth than expected, or higher inflation than expected.

The recent inversion of the most widely-watched U.S. yield curve is not only a sign of rising recession risk, it can also be instructive as to international markets as well.

Market Insights 3/28/2019

U.S. stocks rebounded slightly from yesterday’s dip with choppy market action continuing.

Crude oil prices modestly extended yesterday’s declines, while the U.S. dollar rallied and gold dropped.

The Markets…

The Dow Jones Industrial Average rose 92 points (0.4%) to 25,717

The S&P 500 Index was 10 points (0.4%) higher at 2,815

The Nasdaq Composite increased 26 points (0.3%) to 7,669

In moderate volume, 756 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil dipped $0.11 to $59.30 per barrel and wholesale gasoline was off $0.01 at $1.86 per gallon

The Bloomberg gold spot price fell $18.82 to $1,290.75 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—advanced 0.5% to 97.23

GDP revised lower, jobless claims below forecasts

The final look at Q4 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 2.2%, downwardly adjusted from the previous 2.6% gain, and compared to the Bloomberg forecast of a 2.3% expansion. Q3 GDP expanded by an unrevised 3.4% rate.

Personal consumption was revised lower to a 2.5% gain, versus expectations of a downwardly revised 2.6%, and compared to the unrevised 3.5% increase posted in Q3. The report follows a read that combined the advance and secondary estimates due to a delay related to the government shutdown.

Weekly initial jobless claims declined by 5,000 to 211,000, versus expectations calling for 220,000, with the prior week’s figure being downwardly revised by 5,000 to 216,000. The four-week moving average dipped 3,250 to 217,250, while continuing claims rose by 13,000 to 1,756,000, just south of estimates of 1,778,000.

Treasuries were mostly lower, with the yield on the 2-year note rising 3 basis points to 2.23% and the yield on the 10-year note gaining 2 bps to 2.39%, while the 30-year bond rate was little changed at 2.81%. Treasury yields mostly paused their recent decline and the U.S. dollar advanced for a third day, with the markets continuing to deal with last week’s Fed comments and slightly weaker global outlook, an inversion in a pivotal part of the U.S.

Tomorrow, the economic calendar will culminate with the releases of personal income and spending, with both figures expected to rebound m/m, new home sales, forecasted to increase 2.1% m/m to an annual rate of 620,000 units, and the University of Michigan Consumer Sentiment Index, projected to be unrevised at 97.8.

Global markets remain mixed as trade talks in focus and global uneasiness festers

European equities finished mixed amid continued volatility in the global markets and yesterday’s weakness in the U.S., while sentiment improved on the heels of reports that the world’s two largest economies are making progress in trade talks on structural issues such as forced technology transfers. However, optimism of an imminent deal appeared to be dampened somewhat by White House economic advisor Larry Kudlow saying that the Trump administration is prepared to keep negotiating for weeks or even months to reach a deal.

Pressure on global bond yields and the inversion of a closely watched portion of the U.S. Treasury yield curve continued to foster recession worries. In economic news, Eurozone economic confidence fell versus last month while it moved higher in the U.K. On inflation, the German Consumer Price Index ticked lower y/y. Bond yields in the region were mostly higher, while the euro was lower versus the U.S. dollar and British pound came under heavy pressure as the U.K.’s Brexit stalemate deepened. Prime Minister Theresa May offered to resign if her withdrawal deal was passed by Parliament, while lawmakers voted on a series of Brexit alternatives, with none gaining majority support.

Stocks in Asia finished mixed following the downward slide in the U.S. yesterday, as investors continued to watch rates after the 10-year U.S. Treasury yield fell below the 3-month rate for the first time since 2007 last week, triggering recession concerns. Also, high-level U.S. trade representatives began negotiations in Beijing, while reports that the two countries had made progress on pivotal structural issues, such as forced technology transfers, surfaced.

Mainland Chinese stocks retreated but the Hong Kong Hang Seng Index increased modestly, following an upbeat earnings outlook from ZTE Corporation and a drop in profits from China Construction Bank Corporation. Also, China’s Premiere Li sounded an upbeat note on the domestic outlook, but he warned that the global economy is losing momentum.

Japanese stocks fell, with the yen advancing versus the U.S. dollar, and South Korean markets also declined, while Indian and Australian equities moved higher.

Market Insights 3/27/2019

U.S. stocks mostly gave back yesterday’s rebound as the persistent pressure on global bond yields and the ensuing inversion of a key portion of the U.S. Treasury yield curve kept market uneasiness festering, along with more disappointing Chinese economic data.

The U.S. dollar rose and crude oil prices were lower following an unexpected rise in oil inventories, and gold saw some pressure.

The Markets…

The Dow Jones Industrial Average declined 32 points (0.1%) to 25,626

The S&P 500 Index was 13 points (0.5%) lower at 2,805

The Nasdaq Composite decreased 48 points (0.6%) to 7,643

In moderate volume, 822 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq

WTI crude oil fell $0.53 to $59.41 per barrel and wholesale gasoline lost $0.04 to $1.87 per gallon

The Bloomberg gold spot price moved $6.01 lower to $1,309.68 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—advanced 0.1% to 96.88

Trade deficit narrows more than forecasts, mortgage applications jump

The trade balance showed that the deficit shrank more than expected to $51.1 billion in January, compared to Bloomberg estimates of $57.0 billion. December’s deficit was revised higher to $59.9 billion. Exports were up 0.9% month-over-month at $207.3 billion, while imports were down 2.6% to $258.4 billion.

The MBA Mortgage Application Index rose 8.9% last week, following the prior week’s 1.6% increase. The gain came as a 12.4% jump in the Refinance Index was met with a 6.4% increase for the Purchase Index. The average 30-year mortgage rate moved 10 basis points lower to 4.45%.

Treasuries were higher, with the yield on the 2-year note falling 6 bps to 2.20%, while the yields on the 10-year note and the 30-year bond dropped 5 bps to 2.38% and 2.82%, respectively. Treasury yields resumed their decline after yesterday’s pause and the U.S. dollar extended Tuesday’s gain that came in the wake of the heightened volatility surrounding last week’s gloomier Fed global outlook and slightly more dovish tone as well as wavering global growth concerns.

Tomorrow, the economic calendar will roll on, headlined by the final read on Q4 GDP, projected to be revised to a 2.3% quarter-over-quarter annualized pace of growth from the prior estimate of a 2.6% expansion. Other reports on the docket include: weekly initial jobless claims, February pending home sales and the Kansas City Fed Manufacturing Activity Index for March.

Global markets remain choppy

European equities briefly turned higher in afternoon action amid strength in financials, which likely helped keep Spanish and Italian markets in the green, following comments from European Central Bank (ECB) President Mario Draghi suggesting potential measures to help the banking sector cope with the impact of negative rates. The ECB President also remarked that a temporary slowdown in growth does not necessarily mean that a recession is coming and stated that rate hike timing could be further delayed, sending the German 10-year bond yield further into negative territory.

The euro and the British pound dipped versus the U.S. dollar. Brexit concerns persisted as U.K. Prime Minister Theresa May addressed members of her own Conservative Party after Parliament took control of the Brexit process earlier this week, vowing to step down earlier than intended in order to persuade lawmakers to support her European Union exit plan.

Stocks in Asia finished mixed in the wake of yesterday’s upside move in the U.S. that came as the drop in Treasury yields, which has been a major source of economic concerns, paused, while high-level trade talks between the U.S. and China were set to resume later this week. Chinese and Australian stocks advanced, though Japanese equities dipped amid some strength in the yen, and equities in South Korea and India also moved to the downside.

Global economic concerns lingered as key parts of the U.S. Treasury yield curve remained inverted and China posted the worst slump in industrial profits since the wake of the global financial crisis and Hong Kong exports fell again for February. In addition, the Reserve Bank of New Zealand announced that its next interest rate move was more likely to be a cut, surprising investors.

Market Insights 3/26/2019

U.S. stocks finished well off of the best levels of the day but remained in positive territory throughout the day.

Stocks shrugged off softer-than-expected reads on housing construction activity and Consumer Confidence.

The U.S. dollar ticked higher, crude oil prices gained ground and gold saw pressure.

The Markets…

The Dow Jones Industrial Average rose 141 points (0.6%) to 25,658

The S&P 500 Index was 20 points (0.7%) higher at 2,818

The Nasdaq Composite increased 54 points (0.7%) to 7,692

In moderate volume, 819 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil gained $1.12 to $59.94 per barrel and wholesale gasoline added $0.02 to $1.91 per gallon

The Bloomberg gold spot price decreased $5.45 to $1,316.36 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—advanced 0.2% to 96.78

Consumer Confidence unexpectedly falls

The Consumer Confidence Index declined to 124.1 in March from February’s unrevised 131.4 level and below Bloomberg estimates of 132.5. The Present Situation Index and the Expectations Index of business conditions for the next six months both dropped month-over-month. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—moved lower to 28.3 from the 34.0 level posted in February.

Treasuries moved lower, with the yields on the 2-year and 10-year notes rising 2 basis points to 2.26% and 2.42%, respectively, while the 30-year bond rate ascended 1 bp to 2.87%. Treasury yields recovered from a recent slide and the U.S. dollar rebounded from yesterday’s decline. The markets continued to grapple with last week’s more dovish lean from the Fed and flared-up uneasiness toward inversion of the U.S. Treasury yield curve, which helped foster late last week’s slide in the stock markets.

Housing starts for February fell 8.7% m/m to an annual pace of 1,162,000 units, below the forecast of 1,210,000 units, with single-family construction falling to more than offset a jump in multi-family activity. January starts were revised higher to an annual pace of 1,273,000. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, shrank 1.6% m/m to an annual rate of 1,296,000, versus expectations of a 1,305,000 pace, and compared to January’s downwardly revised 1,317,000 rate. Permits for single-family structures were flat m/m, while authorizations for multi-unit structures fell.

Global stocks move higher as recession fears pause

European equities posted gains, with oil stocks helping to push issues higher, while the global markets generally recovered from recent weak performance as international growth concerns appeared to ease. Crude oil prices rose in the midst of ongoing supply cuts as well as lower U.S. crude oil inventories seen in weekly reports.

Bond yields in the region mostly moved to the upside. The euro was lower and the British pound rose versus the U.S. dollar. The U.K. Prime Minister was given a fresh setback as lawmakers voted to take control of the parliamentary timetable, in an unprecedented move, as they try to find majority support for any Brexit option.

Stocks in Asia finished mostly higher on the heels of mixed and volatile trading in the U.S. markets yesterday that came courtesy of global growth unease and worries about the potential recession implications of the inverted U.S. Treasury yield curve. Japanese stocks rallied after yesterday’s tumble, aided by the yen’s decline.

Mainland Chinese stocks trimmed some of this year’s strong gains, though the Hong Kong market modestly advanced, along with South Korean stocks, which shrugged off a Q1 warning from tech heavyweight Samsung Electronics. Australian issues ticked higher and Indian markets moved nicely to the upside.

Market Insights 3/25/2019

U.S. stocks finished mixed in choppy trading following late last week’s slide with the markets appearing to remain jittery amid festering global growth concerns and uneasiness toward inversion on the U.S.

Treasury yields extended a drop and the U.S. dollar dipped on the heels of the conclusion of Special Counsel Robert Mueller’s Russian collusion investigation, while crude oil prices were mixed and gold rose.

The Markets…

The Dow Jones Industrial Average rose 15 points (0.1%) to 25,517

The S&P 500 Index was 2 points (0.1%) lower at 2,798

The Nasdaq Composite dipped 5 points (0.1%) to 7,638

In moderate volume, 816 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq

WTI crude oil dipped $0.22 to $58.82 per barrel and wholesale gasoline was little changed at $1.89 per gallon

The Bloomberg gold spot price advanced $8.69 to $1,322.39 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—dipped 0.1% to 96.54

Regional manufacturing dips below expectations

The Dallas Fed Manufacturing Activity Index showed growth continued but slowed in March, decreasing more than expected to 8.3 from February’s unrevised 13.1 level, versus expectations of 8.9, with a reading of zero the demarcation point between expansion and contraction.

Treasuries were higher, with the yield on the 2-year note falling 6 basis points to 2.26%, the yield on the 10-year note dropping 3 bps to 2.41%, and the yield on the 30-year bond dipping 1 bp to 2.87%. Treasury yields slid and the U.S. dollar saw slight pressure after yields tumbled on the heels of last week’s Fed meeting and the spread between the 3-month and 10-year note remained inverted.

Tomorrow, the economic docket will heat up with the calendar will bringing the release of the Conference Board’s Consumer Confidence Index, projected to nudge higher to 132.5 for March from February’s 131.4 level, as well as the Richmond Fed Manufacturing Index, estimated to decline to 10 this month from last month’s 16 level, though a reading above zero denotes expansion.

Global markets slide as global growth fears persist

European equities finished mostly lower, with the markets struggling to recover from Friday’s downturn that came amid flared-up global growth concerns as economic data from the region disappointed, while possible recession signs from the U.S. bond markets caught investors’ attention. Market participants looked to evaluate the significance of recent signals from bond markets across the pond, with the yield spread between the 3-month and 10-year U.S. Treasury notes inverting on Friday.

The euro and British pound rose versus the U.S. dollar and bond yields in the region were higher. Brexit continued to add to a background of political uncertainty, as the U.K. Prime Minister’s staying power seemed to be in question prior to an extended divorce deadline, while the European Union put out a statement saying that a no-deal departure is “increasingly likely.”

Stocks in Asia finished lower following ongoing global growth concerns and recession fears simmered after an inverted yield curve in the U.S. bond markets last week added to a downgraded economic outlook from the Fed. Stocks in South Korea, Australia and India all came under pressure, while Japanese and Chinese markets fell to lead the broad-based selloff.

The markets appeared to remain uncertain as to how consumers will react to the latest round of Chinese stimulus plans from the government, while concerns continued ebb and flow around U.S./China negotiations, with some market participants seeming to hope that a trade deal could be concluded in April. T

Random Thoughts

With only five trading days to go, U.S. equities are on track to post a double-digit price rise in Q1, despite the recent one-day slump of 2% last Friday.

After jumping 8% in January, the S&P Composite 1500 advanced 11.6% YTD through March 22. All 11 sectors in the 500 rose in price, as did 89% of its 146 sub-industries. With such a positive start to the year, will there be more gains ahead? History says it’s likely.

In the 28 years since 1945 in which the S&P 500 was up in the first two months of the year, not only was the 500 up in all years, but it also saw average returns of 3.9%, 2.0% and 5.1, respectively in Q2, Q3 and Q4, each of which beat the average quarterly return for all years and recorded higher frequencies of positive returns.

Like most middle children, who do not act up in order to get attention, the second quarter usually gets overlooked from a performance perspective. Yet Q2 contains the month with the second-best average return and frequency of price advance for the S&P 500 (April), along with below-average deepest declines and volatility. Finally, two of the three months of the quarter sport above-average records of setting new all-time highs.

Current GDP growth estimates may end up renaming the “goldilocks economy” the “Mama Bear expansion”, as it’s expected to cool off, especially in Q1. Indeed, forecasts on first-quarter 2019 GDP growth to be a full percentage point below that recorded for the final quarter of 2018, likely due to the government shutdown, adverse weather and trade tensions with China. However, most economists are not looking for a recession to start in 2019, as none of the quarterly growth estimates is projected to be negative and the unofficial definition of a recession is two successive quarters of GDP decline.

Besides an expected slowdown in GDP growth, the S&P 500’s Q1 2019 EPS reporting period is also expected to simmer down, with any catalyst for share-price appreciation likely to come from an improvement in forward guidance.

Most estimates point to a 2.3% decline in Q1 earnings for the S&P 500 along with red ink for seven of its 11 sectors. It would also be the first year-over-year decline since the four-quarter earnings recession of 2015-16. However, we don’t foresee another EPS recession in 2019, as Q2 EPS are projected to eke out a 0.8% gain, followed by a near-2% rise in Q3 and an 8.5% jump in Q4. Also, 2020 EPS are seen up 12.6%.

Market Insights 3/22/2019

The U.S. equity markets closed out the week with solid losses, as global growth concerns, on the heels of disappointing European economic data, and trade worries pressured sentiment.

Treasury yields were also markedly lower amid mixed domestic economic data and Gold and the U.S. dollar were higher and crude oil prices were lower.

The Markets…

The Dow Jones Industrial Average tumbled 459 points (1.8%) to 25,503

The S&P 500 Index lost 54 points (1.9%) to 2,801

The Nasdaq Composite plunged 196 points (2.5%) to 7,643

In heavy volume, 1.1 billion shares were traded on the NYSE and 2.5 billion shares changed hands on the Nasdaq

WTI crude oil fell $0.98 to $59.04 per barrel and wholesale gasoline was flat at $1.89 per gallon

The Bloomberg gold spot price rose $3.64 to $1,313.00 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.1% to 96.61

Markets were lower on the week, as the DJIA declined 1.3%, the S&P 500 Index was down 0.8%, and the Nasdaq Composite descended 0.6%

Economic calendar delivers mixed data

The preliminary Markit U.S. Manufacturing PMI Index showed that growth decelerated, declining to 52.5 in March, from February’s 53.0 figure, and versus Bloomberg estimates calling for a rise to 53.5. In addition, the preliminary Markit U.S. Services PMI Index showed growth was slower than expected for the key U.S. sector this month, falling to 54.8 from February’s 56.0 figure, versus expectations to nudge lower to 55.5. Readings above 50 for both indexes denote expansion.

Treasuries were higher, as the yields on the 2-year note and the 30-year bond decreased 9 basis point (bps) to 2.31% and 2.87%, respectively, while the yield on the 10-year note was 10 bps lower at 2.44%.

Existing-home sales in February jumped 11.8% m/m to an annual rate of 5.51 million units, compared to expectations of a rise to 5.10 million units and verses January’s downwardly-revised 4.93 million rate. Sales of single-family homes were up m/m and were 1.4% below year-ago levels, while purchases of condominiums and co-ops were unchanged m/m but were down 5.0% y/y.

Europe lower as weak regional data weighs on markets, Asia higher

Stocks in Europe finished lower, as weakening economic data combined with a subdued global outlook from the Fed earlier in the week to weigh on sentiment. Markit’s Eurozone composite Purchasing Managers’ Index (PMI) fell to 51.3 in March from 51.9 the previous month, and below expectations of 52.0. Germany’s manufacturing PMI contracted for the third month in a row, helping send the country’s bond yields lower, and French composite PMI numbers also missed estimates.

In other developments, bond yields in the region were mostly lower and the euro lost ground versus the greenback, while the British pound moved higher versus the U.S. dollar. The European Union (EU) agreed to an extension of the U.K.’s Brexit withdrawal date, while the length of the delay hinges on whether the U.K. Parliament will approve the Prime Minister’s divorce agreement next week. The Prime Minister of Ireland commented that the EU has now taken control of the timeline from the British.

Stocks in Asia finished mostly higher in volatile trading, as the markets digested the implications of a dovish Fed, which indicated that no additional hikes are forecasted for 2019 and that it lowered its economic projections. Japanese equities ticked higher, with the markets reopening after yesterday’s holiday and amid some choppiness in the yen, as the Asian nation’s core Consumer Price Index slowed in February, rising 0.7% y/y versus forecasts of a 0.8% y/y gain, and March manufacturing data was flat m/m.

Stocks in mainland China and Hong Kong only nudged higher amid some disappointing news out of the tech sector. Shares traded in South Korea also saw only modest gains, while Australian listings rose and markets in India were lower.

Stocks down on global growth concerns and Fed comments

Giving up last week’s gains, equities finished lower for the week, as concerns over slowing global growth flared up after a negative outlook from the Fed was reinforced by disheartening economic data out of Europe and Japan on Friday. The economic calendar was unable to lend much support to end the week as a slight deceleration in U.S. manufacturing activity and services activity per Markit helped dampen market sentiment. However, bright spots on the docket included a rise for leading indicators and an upbeat read on existing home sales.

The Federal Reserve concluded its monetary policy meeting, where the central bank left the target range for its fed funds rate unchanged, as widely expected and showed a more dovish stance with its forecast reduced to no more rate hikes this year, while it announced plans to end its balance sheet reduction soon. Stocks were choppy throughout the week and the conclusion of the Fed meeting pushed Treasuries higher, with the spread between the 3-month and 10-year note inverting on the last day of the week.

Crude oil prices reversed the year’s upward trend with a decline at the end of the week, while gold continued its overall push higher for the month of March. This was only the third week in 2019 that stocks have dropped.

Next week, the economic docket with heat up with the mid-week release of the advance goods trade balance and another read on Q4 GDP. Other reports that will likely garner some attention include: personal income and spending, consumer confidence, and the final University of Michigan Consumer Sentiment Survey for March.

Market Insights 3/21/2019

U.S. equities were higher amid a host of items for investors to digest, including yesterday’s Fed meeting and its more dovish tilt, as well as some upbeat economic reports.

Treasury yields were lower, and the U.S. dollar was higher, while gold and crude oil prices lost ground.

The Markets…

The Dow Jones Industrial Average rose 217 points (0.8%) to 25,963

The S&P 500 Index was 31 points (1.1%) higher at 2,855

The Nasdaq Composite jumped 110 points (1.4%) to 7,839

In moderate volume, 890 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq

WTI crude oil lost $0.25 to $59.98 per barrel and wholesale gasoline was unchanged at $1.92 per gallon

The Bloomberg gold spot price declined $3.71 to $1,308.82 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.7% to 96.47

Leading Index higher than expected, jobless claims fall

The Conference Board’s Index of Leading Economic Indicators (LEI) for February increased 0.2% month-over-month, above Bloomberg projections of a 0.1% increase and compared to January’s upwardly revised flat figure. The yield curve, stock prices and consumer expectations were positive and jobless claims were negative, while new orders and building permits were flat.

Weekly initial jobless claims fell by 9,000 to 221,000, versus expectations calling for 225,000, with the prior week’s figure being revised higher from 229,000 to 230,000. The four-week moving average rose by 1,000 to 225,000, while continuing claims decreased by 27,000 to 1,750,000, south of estimates of 1,770,000.

Treasuries were mostly higher, with the yield on the 2-year note flat at 2.40%, while yields on the 10-year note and the 30-year bond declined 2 basis points to 2.52% and 2.96%, respectively.

Yesterday, the Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting, announcing no change to its target range for the Fed funds rate of 2.25%-2.50%. The Committee indicated that since it met in January, “the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter,” and that, “Recent indicators point to slower growth of household spending and business fixed investment in the first quarter.” As well, in a surprising move, the Committee scaled back its projected rate increases, known as the “dots plot”, to zero for the remainder of this year, and only one for 2020.

Europe mixed after central bank meetings and amid Brexit uneasiness, Asia mostly higher

European equities finished mixed, as market participants weighed the Federal Reserve’s more dovish stance at the conclusion of its policy meeting yesterday, as well as today’s Bank of England (BoE) decision to hold rates steady. The BoE gave some insight into its unchanged policy, noting that Brexit concerns continue to weigh on confidence and short-term economic activity as more companies are triggering plans for a no-deal Brexit.

French President Emmanuel Macron, on the heels of the U.K. government submitting a request for a short Brexit extension to European Union leaders, said another failure by the U.K. Parliament to back Prime Minister Theresa May’s Brexit deal “will guide everyone to a hard exit.”

Asia closes mostly higher after Fed announces it will hold steady

Stocks in Asia finished mostly higher after yesterday’s unchanged rate decision by the U.S. Federal Reserve, which unexpectedly indicated that no additional hikes are forecasted to be coming this year. Australian jobless data also fell to a near eight-year low in February, sending the Australian dollar sharply higher.

Random Thoughts

In what may end up being a classic example of “talking back the sale” Fed Chair Powell’s initial comments following the conclusion of the Fed’s two-day meeting implied that there would be no more rate hikes in 2019 and that the U.S. economy’s growth was solid.

In response to additional probing by the financial media, however, he acknowledged the committee’s concern over global growth, particularly related to Europe and China.

All the while, the equity market’s undulation mirrored the alternating tenor of his commentary.

Despite this vacillation, we see shades of 1995. The FOMC raised short-term rates seven times from February 1994 into February of 1995, which helped trim annualized GDP growth from 5.4% in June 1994 to 1.2% a year later.

Yet the end of hikes, followed by a rate cut in July 1995, helped propel the S&P 500 by 34% that year. This year, the magnitude won’t likely be the same, but we think the direction will.

Fed Holds Rates Steady

The Federal Reserve did not raise rates in its meeting today and dramatically downgraded its expected rate path to signal that no rate hikes are likely in 2019. At the conclusion of its Federal Open Market Committee meeting, the Fed also announced that it will slow the rolloff of its balance sheet in May and then conclude its reduction at the end of September.

In keeping interest rates steady at the current target range of 2.25% to 2.5%, the Fed said said that the labor market “remains strong” but said economic growth has “slowed from its solid rate in the fourth quarter.”

The Fed statement said indicators have pointed to “slower growth” of household spending and business fixed investment.

The decision to hold rates steady was widely expected; fed funds futures headed into the meeting priced in a 98.7% chance of keeping rates where they are.

Lower expectations for rates, GDP growth

The “dot plots,” which chart FOMC voters’ estimates for where they feel benchmark interest rates should be in the next three years, had the median dot for 2019 at the current level of 2.25% to 2.5%.

That view – that no rate hikes would be appropriate for 2019 – came from an overwhelming majority of participants: 11 out of 17.

Those projections are a significant downward revision from the December FOMC meeting where policymakers raised by 25 basis points and said the economy could absorb “some further gradual increases.” For comparison, the median dots in the December dot plot signaled two rate hikes for 2019 and a third in 2020.

The lower outlook on rates falls in line with the Fed’s slightly lower expectations for GDP growth.

For 2019, the Fed brought down its median projection for GDP growth from 2.3% to 2.1%. The Fed also raised its 2019 median estimate for unemployment from 3.5% to 3.7%.

The median estimate for inflation, which has persistently floated below the Fed’s 2% target, was brought down from 1.9% to 1.8% for 2019.

In its policy statement, the Fed said overall inflation “has declined,” which is new language compared to its January statement. The Fed added that market-based measures of inflation compensation have “remained low in recent months.”

Inflation has been in view ever since the Fed’s January meeting where it shifted dovish, reiterating the need for patience as it assesses the development of “muted” inflation pressures in addition to geopolitical concerns abroad.

Balance sheet unwind to end in September

The Federal Reserve also followed through on its plans to announce more detail on the timing of its balance sheet normalization process.

In May, the Fed plans on slowing the reduction of its holdings of Treasury securities. Currently the Fed is allowing redemptions on $30 billion of Treasuries a month, which it will slow to $15 billion.

The Fed says by the end of September, the Fed will conclude the reduction of its securities holdings. A statement added that at that point in time, the Fed will have a balance sheet that will “likely still be somewhat above the level of reserves necessary to efficiently and effectively implement monetary policy.”

With more clarity on the size of the balance sheet, the next step for the Fed will be deciding its ultimate composition. Some Fed officials have advocated for a more “neutral” balance sheet skewed toward shorter-term Treasurys in place of the Fed’s current longer-term Treasury and agency debt and mortgage-backed securities holdings.

The Fed says it will continue to let its agency debt and agency MBS holdings decline, adding that in October of this year principal payments from those securities will be reinvested in Treasuries at a maximum amount of $20 billion per month.