Economic Update 4-15-2019

• In a light week for economic data, producer and consumer prices rose a bit more than expected on the headline side, due to higher recent energy prices. Positive news included jobless claims again reaching multi-decade lows, while, on the negative side, the government JOLTS report indicated fewer job openings.
• Global equity markets experienced gains for the week, with foreign stocks helped by a weaker dollar. However, bonds fell back as interest rates ticked higher and the treasury yield curve again turned positive for the most part. Commodity indexes gained due to higher prices for crude oil and agriculture.

U.S. stocks gained a bit on the week with earnings season slowly beginning and core inflation levels coming in contained. By sector, financials led by gaining 2%, as the yield curve again moved in a positive-sloping direction, as well as positive earnings results from JPMorgan to begin the Q1 earnings season; just behind were gains in communications, led by sharp gains in Disney, which rolled out a new streaming service; and technology. Bringing up the rear was health care, which lost over -2% due to Congressional debate over the future of Obamacare (or some other plan). The uncertainty component over payment structures and possible caps for areas such as prescription drugs have not been kind to health care stocks in the past.

Foreign stocks were largely flat on the week, which, after adjusting for a weaker dollar, translated to gains in line with U.S. equities. The European Central Bank left interest rates unchanged, largely as expected, due to downside risks of economic growth in the region persisting. The deadline for a Brexit agreement was extended by the EU until October, although markets seemed largely unfazed. Overall, sentiment continues to be driven by global economic growth news, including downgrades in 2019 growth numbers by the IMF by a few tenths of a percent overall and in most key regions, weakness in Chinese auto data last week, as well as tariff bickering between the U.S. and Europe, despite stronger hopes for a deal between the U.S. and China. Emerging markets were mixed, with profit taking in China and weakness in Turkey following presidential scrutiny of recent local election results.

U.S. bonds lost ground overall as interest rates ticked higher on stronger recent economic news. While the 3 month to 5 year treasury spread continues to be inverted, 10-year and longer treasury levels are positively sloped versus short-term bonds. Credit fared better, as spreads tightened, led by high yield and floating rate debt, which outperformed all others for the week. Foreign bonds were helped by a weaker dollar in developed markets, while emerging market bonds were again mixed.

Commodities gained ground on net, with a weaker dollar and higher prices for energy and agriculture, while industrial and precious metals were little changed. The price of crude oil rose by over a percent to just under $64/barrel. Little new geopolitical activity appeared to move the dial, other than a lower U.S. rig count, stronger demand from China, and continued geopolitical uncertainty in several key production regions.

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.