Economic Update 3-04-2019

• Economic data for the week consisted of prior quarter GDP growth coming in late but a bit better than expected, mixed results for housing and consumer sentiment, while ISM manufacturing and jobless claims were weaker.
• U.S. equity markets gained slightly, as did those in foreign developed markets, while emerging markets declined. Bonds lost some ground as interest rates increased. Commodities fell, led by declines in multiple segments, including the price of crude oil by several percent.

U.S. stocks pushed higher for yet another week as optimism over a trade deal continued to boost sentiment, with noted progress on a variety of issues, as well as the prior announcement of an extension of the March 1 deadline. By sector, despite the drop in oil prices, energy led with a percent gain, followed by technology and financials, while materials fell by over a percent. Interestingly, the S&P index is now back to levels last seen in early October 2018, when the eventual bear market was just beginning—but not quite back to the highs of late September.

Foreign developed markets performed slightly more strongly than did U.S., while emerging market equities lost ground to serve as the outlier for the week.  The dollar was mixed, as the yen weakened while the pound and euro strengthened; the latter appeared to be due to increasing sentiment towards some type of Brexit deal in coming months, with perhaps an extension of the late March deadline. There is even talk of a new referendum, which would throw another wrench into the works; however, that continues to be a lower probability event. Japanese GDP growth of 1.4% for Q4 was a bit better than expected, although future prospects remain mixed.

Chinese stocks rallied early in the week (over 5% on Monday alone) in response to the U.S. decision to delay the Mar. 1 trade tariff implementation. In addition, MSCI announced it would sharply increase weightings of Chinese equities in its benchmarks in 2019, in a reflection of the increasing proportional market cap of the nation’s equities in relation to the rest of the world. Brazil and Mexico, on the other hand, lost several percent. The latter was largely due to concerns over slower growth and increased needs for boosting financial support for the heavily-indebted state-owned energy firm.

U.S. bonds were largely negative, as interest rates ticked up across the bulk of the yield curve along with a stronger appetite for risk assets. The exception was high yield, which gained a half-percent, in keeping with a stronger correlation to equities. Foreign bonds similarly lost ground, in both developed and emerging markets.

Commodities suffered a down week, in keeping with most of its components—with declines in energy, agriculture and precious metals, while industrial metals gained slightly. A 4% increase in natural gas prices were not enough to offset the price of crude oil falling by -3% to $56/barrel. Crude tumbled in price sharply early in the week, in response to the President’s tweeting about displeasure with current prices (as ‘too high’), with a partial recovery achieved by Friday. The recovery appeared likely due to OPEC’s decision to cut production for the coming quarter in order to sustain prices, considering higher U.S production.

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.