Economic Update 3-20-2019

• A busy week for economic data included stronger-than-expected results in retail sales, durable goods, construction spending, consumer sentiment and several jobs indicators, while industrial production fell short. Several inflation measures also came in a bit lower than anticipated.
• U.S. and foreign markets both experienced solid gains for the week. Bonds also fared positively, led by riskier sectors, such as high yield and emerging markets. Commodities gained along with a weaker dollar and higher pricing for crude oil.
• U.S. stocks fared well during the week, as economic data on the macro side was supportive of fundamentals, although offering few big surprises. Optimism persists over a potential U.S.-China trade deal in coming weeks, along with a Chinese pledge last week to not rely on currency devaluation as a trade leveraging tool.

Every sector was in the green last week, led by technology, energy and healthcare, with tech sentiment boosted by the announcement of a new Apple streaming service. Industrials brought up the rear with barely a gain—hurt by Boeing’s disastrous -10% week due to the global grounding of a version of the widely-used 737 following the second consecutive crash involving the model as investigations into the causes continued.

Foreign stocks gained as strongly, or slightly better, than U.S. equities, with help from a weaker dollar as well as the seeming likelihood that a ‘hard Brexit’ would be avoided at the end of March. The most recent deal departure from PM Theresa May was again rejected, but parliament did agree to reject any ‘no-deal’ departure—which is a positive in a roundabout way. An extension seems the most likely outcome, although the idea of another public referendum is being discussed again at a possibility. Emerging markets were led by strength in a variety of regions, including support for additional Chinese stimulus to combat the recent slowdown as well as positive political news in India and Brazil.

U.S. treasury bonds ended the week just slightly higher, with little change in interest rates. Interestingly, the partial yield curve inversion has persisted between the 3 month and 5 year parts of the market, which serves as the market’s lack of confidence in growth or inflation prospects over that near-term time frame. High yield debt earned far sharper gains, along the lines of equities and tightened spreads. Foreign bonds fared especially well, helped by the USD, which fell nearly a percent for the week. Emerging markets ended best, with both spread and currency effects working in its favor, and continuing a run of an approximate 5% return year-to-date.

Commodity indexes gained a few percent on the week, with positive returns in all segments, led by energy and agriculture. The price of crude oil rebounded by over 4% to end the week at over $58/barrel, offsetting a -2% decline in natural gas, as winter’s effects are beginning to fade. Crude ticked higher due to ongoing production cuts by OPEC, in an effort to stabilize prices higher, in addition to a pickup in estimates for oil demand. Oil’s near-40% price rally from lows around Christmas have brought pricing levels back to where they were in mid-November. Although the magnitude has been far more dramatic for crude, the price chart shape looks nearly identical to that of the S&P 500—reinforcing that macro factors have dominated over the past several months.

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.