Economic Update 2-11-2019

• Economic releases were again light, as the impact of the government shutdown has altered schedules for now-stale data, but the week did see a weaker, but still strong, result for ISM non-manufacturing, a trade balance that moved further into deficit than expected, and jobless claims continued to indicate strength in labor markets.
• U.S. equity markets were flattish on the week as earlier optimism again tapered off due to skepticism about a U.S.-China trade agreement, although foreign stocks fared worse due to a stronger dollar.  Bonds performed decently on the back of lower interest rates.  Commodities declined on the week, driven by lower prices for crude oil and natural gas.

U.S. stocks were flat on net as early gains tempered later in the week, as White House economic advisor Larry Kudlow noted that a ‘pretty sizable distance’ remains between the U.S. and China from a trade deal standpoint, and it appeared the U.S. administration would not be meeting with the Chinese prior to the initial March 1 deadline, when the 25% tariff level is slated to go into effect.

By sector, utilities, information technology and industrials all gained over a percent, while energy and materials ended the week in the week in the negative, in keeping with lower commodity prices.  Real estate gained as well, fueled by lower interest rates and discounted valuations noted in several sectors.

Foreign stocks underperformed, ending with negative returns, largely as the result of a stronger dollar.  For the first time in a few weeks, developed markets outperformed emerging in local terms, although on a USD-adjusted basis, results were similar.  Trade concerns continued to dominate, as did the EU releasing their lowered forecast of growth, from 1.9% to 1.3% for 2019, including that in key nation Germany from 1.8% to 1.1%.  The Bank of England did the same, lowering expectations for growth a half-percent to 1.2%, while keeping rates steady in the midst of ongoing uncertainty over the Brexit process.  The Chinese stock market was closed for their Spring Festival celebration, while Brazilian stocks led emerging markets downward as negativity continued following the recent mining and dam failure disaster.

U.S. bonds fared well as interest rates ticked down again during the week.  Investment-grade credit outperformed governments slightly, although long-duration (20+ year) treasuries performed best, by gaining over a percent.  Flattish returns in local currency for both developed and emerging markets were turned negative after accounting for a sharply stronger dollar.

Commodities overall fell for the week by over a percent, with all groups in the negative.  Minor losses in precious and industrial metals were coupled with more dramatic losses in the energy patch—crude oil and natural gas.  The price of crude oil fell by nearly -5% on the week to just below $53/barrel, as reports/concerns of slowing demand in keeping with weaker global economic growth were further exacerbated by higher supplies.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                          

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.