Week In Review 5.3.2019

After a busy week of economic data and corporate earnings releases, the S&P 500 index finished flat, while small caps and ex. US stocks outperformed.

The S&P 500 traded at record highs early in the week as Q1 corporate earnings results generally came in ahead of expectations. Macroeconomic data released during the week was also net positive. However, late-Wednesday, the index traded lower in reaction to confusing communications from the Federal Reserve regarding its views on inflation. Specifically, the FOMC, via its official statement, appeared to signal a potential rate cut, citing below-target inflation. But in a subsequent press conference, Chairman Powell clarified, stating that “transitory factors” are the likely cause of below-target inflation and that the committee still expects inflation figures to lift closer to its 2.0% target. This muted expectations for a rate cut, which fueled some short-term selling.

As expected, the FOMC unanimously voted to keep the Fed funds rate unchanged at 2.25%-2.50%. The committee also reinforced its message of being patient regarding future rate adjustments.

International market sentiment improved over the course of the week on reports that Italy officially exited a technical recession, Eurozone and Spanish GDP growth numbers were better-than-expected, and PMI figures across Europe showed signs strengthening. China PMI data, however, was weaker than expected.