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  • April 15, 2019

Week in Review

Week Ending: Friday, April 12, 2019

Recap & Commentary

Equity markets drifted higher in a week that generally lacked conviction or direction. With the S&P 500 ending the week less than 1% from its all-time high set last September, investors appeared to be taking a bit of a wait-and-see approach. While the Fed appears to have largely tipped its hand with respect to no additional rate hikes in 2019, investors continue to vacillate between apprehensive and optimistic regarding ongoing trade talks between the U.S. and China, and are curious as to the strength of first quarter corporate earnings.

A casual market observer would be forgiven for believing that all investors are currently feeling “bullish” given the strong start to the year for the S&P 500. While that may be true for equity investors, who clearly view the proverbial cup as half-full, it appears that fixed income investors see it as half-empty. That is best reflected in interest rates- measured by the 10-year Treasury yield- which fell to their lowest levels since Dec. 2017, in late March.

Certainly the more “dovish” language emanating from the Fed and European Central Bank (ECB) has helped drive rates lower, but fixed income investors also appear to be more cautious in their outlook for global growth than their equity brethren. Echoing those sentiments, the International Monetary Fund (IMF) reduced its 2019 global growth forecast to 3.3% which, if met, would be the slowest pace of growth since the financial crisis.

Economic Commentary

Inflation- Headline consumer prices (CPI) rose 0.4% in March, higher than expected, due primarily to a sharp rebound in energy prices. Core CPI, which excludes volatile food and energy prices, rose a more modest 0.1%. Y/Y, core CPI, the better measure in our opinion, slipped -0.1% to 2.0%. Headline business prices, (PPI), also rose in March, up a seasonally adjusted 0.6%. Core PPI posted a much softer 0.3% March gain. Like core CPI, core PPI rose just 2.0% Y/Y. On balance, economic data may be slowing, but both consumer and business inflation remains stable.

US Factory Orders fell an expected -0.5% in February. Durable goods orders, which account for about half of all factory orders, fell -1.6%. Excluding aircraft and other transportation equipment, core durable goods orders have slipped a modest -0.1% in two of the last three factory reports. Conversely, core non-durable goods orders—items meant to last less than three years, rose 0.6%. All told, manufacturers are still expanding, but they’ve turned more cautious recently in response to trade tensions, slowing global growth, and a stronger dollar.

Small Business Optimism rose 0.1 points to a 101.8 reading in March. While the NFIB Small Business Optimism index has fallen from its peak, optimism remains elevated, and businesses continue to report expansion plans.

Consumer Sentiment ticked lower in April with the survey’s results suggesting that American households believe that the impact of tax cuts may now have run its course.

Of Note

Oil major Chevron agreed to acquire Anadarko Petroleum for $33B. The deal will boost Chevron’s daily global production to 3.6 millions barrels, just behind Exxon’s 3.8 mbd, and make it the second largest player in the Permian Basin, currently the country’s most productive oil field.

Market Indices Week of 4/12

S&P 500                          0.5%

Small Caps                      0.1%

Intl. Developed              0.2%

Intl. Emerging                0.4%

Commodities                 0.5%

U.S. Bond Market          -0.1%

10-Year Treas. Yield      2.56%

US Dollar                        -0.4%

WTI Oil ($/bl)                    $64

Gold ($/oz)                     $1,294

The Week Ahead

  • Leading Indicators
  • Retail Sales
  • Industrial Production
  • Housing Starts
  • International Trade
  • Jobless Claims

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