Week in Review
Week Ending: Friday, May 3, 2019
Recap & Commentary
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.
US Productivity jumped to a 3.6% annual rate in Q1, the most since Q3 2014, besting the 2.4% estimate. On a Y/Y basis, productivity rose 2.4%, a level not seen since Q3 2010. If sustained, this surge could extend the life of the current expansion by boosting potential output growth. It will also allow for a pickup in worker compensation that is not inflationary.
Employment—Payrolls added 263K jobs in April, handily beating the 190K consensus expectation. Revisions netted another 16K in payroll additions over the prior two months. In addition, the unemployment rate dropped to a 49-year low of 3.6%. Average hourly wages rose 0.2% from the prior month, short of the 0.3% estimate. On a Y/Y basis, growth of 3.2% was in-line with expectations.
Services—Both ISM and PMI non-manufacturing figures slowed to their lowest levels since August 2017. While current levels are consistent with above-trend growth, the pullback from cycle highs seen last September suggests decelerating service sector growth.
Manufacturing data in April was mixed but soft overall. Year-to-date, US factory data remains subdued despite price pressures easing for both inputs and finished goods.
International Trade in Goods data proved better-than-expected in March, at a deficit of $71 billion, well under the $74 billion expectation.
Shares of plant-based meat substitute company, Beyond Meat Inc., surged 163% in its first day of trading, putting its market capitalization at $3.7 billion. That marked the best first-day percentage gain for a US-listed IPO this year, according to Dealogic.
Market Indices Week of 5/03
S&P 500 0.2%
Small Caps 1.4%
Intl. Developed 0.2%
Intl. Emerging 0.4%
U.S. Bond Market -0.1%
10-Year Treas. Yield 2.53%
US Dollar -0.5%
WTI Oil ($/bl) $62
Gold ($/oz) $1,292
The Week Ahead
- Consumer Credit
- International Trade
- Jobless Claims
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