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Week in Review

Week Ending: Friday, March 29, 2019

Recap & Commentary

Domestic equity markets closed out the quarter on a positive note, capping their best quarter since 2009 and best first quarter since 1998 (as measured by the S&P 500). The move higher came despite economic data which pointed to further slowing, and lingering concerns about the recent yield curve inversion.

Brexit remained in the headlines as Britain's Parliament rejected for a third time, PM May’s Brexit plan, while also voting down eight other possible options. Without a plan, the UK is set to “crash out” of the EU on April 12, risking economic chaos. In anticipation of such an event, the EU has scheduled an emergency summit of April 10. Meanwhile, Parliament is expected to hold more votes this week.

Bond yields rose on Friday, ending the recent yield curve inversion. The yield on the 10-year Treasury Bond ended the week at 2.41%, 0.01% higher than the 3-month Treasury Bill.

Following such a strong start to the year, investors should be prepared for the possibility of increased volatility in the second quarter. While a positive outcome to U.S./China trade talks would likely be supportive of markets, such an outcome seems largely “priced in” already. Meanwhile global economic data continues to weaken, increasing the chances that any downside surprises to first quarter earnings could result in increased market volatility.

Economic Bullet Points

GDP- 4Q18 GDP was revised down -0.4%, to 2.2%, matching the consensus estimate. Nearly all major categories were downgraded, with the exception of net exports. Overall, the revised data supported the notion that U.S. economic growth slowed in the latter part of 2018.

Personal Income and Spending rose just 0.2% and 0.1%, respectively in February, missing consensus expectations. Inflation, as measured by core PCE, the Fed’s preferred measure, was largely unchanged with year-over-year growth slipping -0.1% to 1.8%. With little threat of the economy overheating, the data was supportive of the Fed’s recent decision to hold off on any further rate hikes.

International Trade—The trade deficit narrowed by -$8.8B in January, after widening to its largest gap since the financial crisis last month. Even with the improvement, however, the deficit remains larger than 2009-2016 levels.

Housing- Starts and Pending Home Sales declined -8.7% and -1.0% in February, reversing their respective 11.7% and 4.3% rebounds in January. For both measures, the bulk of the swings were due to adverse winter weather conditions. New Homes Sales, conversely, rose 4.9% in February following an 8.2% rise in January. Despite mixed housing data, the recent decline in mortgage rates should boost demand and drive sales in the coming months.

Jobless Claims fell 5K to 211K, below the consensus of 220K. The four-week average of claims fell ~4K, its fifth decline in a row, to 219K, consistent with tight labor conditions.

Of Note

Ride-sharing company Lyft held its initial public offering (IPO) on Friday. The company raised ~$2B, bringing its total valuation to $22B. Uber is expected to hold its own IPO in 2019, perhaps as soon as April.

Market Indices Week of 03/29

S&P 500                            1.1%

Small Caps                      2.3%

Intl. Developed             -0.9%

Intl. Emerging               -1.4%

Commodities                -0.8%

U.S. Bond Market          0.4%

10-Year Treas. Yield     2.41%

US Dollar                        0.6%

WTI Oil ($/bl)                   $60

Gold ($/oz)                   $1,292

The Week Ahead

  • Employment Report
  • ISM/PMI Manuf. Index
  • Durable Goods Orders
  • Retail Sales
  • Consumer Credit
  • Jobless Claims

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