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Financial Markets Commentary For the week of March 4, 2019

Key Market Data

02/22/2019 03/01/2019 One Week Change YTD One Year
S&P 500 Index 2,792.67 2,803.69 +0.39% +12.26% +6.81%
MSCI EAFE Index 1,869.15 1,878.53 +0.50% +9.65% -3.91%
Barclays Capital U.S. Aggregate Bond Index 2,071.35 2,063.07 -0.40% +0.80% +2.68%
10-year Treasury Note Rate 2.654% 2.755% +10.1 basis points +6.8 basis points -5.4 basis points

The Dow’s weekly winning streak ended at nine, but both the S&P 500 and the Nasdaq were up as stocks began March on a high note and closed out their best two-month opening stretch in decades last week. Thanks to solid fourth-quarter earnings, the Federal Reserve’s pledge to take a “go-slow” approach to raising its benchmark rate and the possibility of a breakthrough in trade talks with China, both the Dow and S&P 500 were up more than 11 percent in January and February, their strongest starts since 1987 and 1991, respectively. The Nasdaq jumped 14 percent over that time, its best opening run since 2012.

The trade talks

Going into last week, it looked as if China and the U.S. were on the verge of a trade deal after a weekend of negotiating in Washington. No final accord was reached, but on Wednesday the White House suspended its threat to raise tariffs from 10 percent to 25 percent on $200 billion in Chinese goods “until further notice.” President Trump said, “We are very well on our way to doing something special,” though Trade Representative Robert Lighthizer, appearing before the House Ways and Means Committee, said, “Much still needs to be done both before an agreement is reached and, more importantly, after it is reached, if one is reached.”

Powell on Capitol Hill

The Fed’s Chairman, Jerome Powell, answered questions from Congress last week, and his message was clear and consistent: the Fed was in “no rush” to raise its rate and, despite signs of a slowdown in the Eurozone and China and “muted” inflation,” it could afford to go slow because the American economy was, in contrast, still humming. Citing “some crosscurrents and conflicting signals,” he told the Senate Banking Committee, “This is a good time to be patient and watch and wait and see how the situation evolves.”

Q4 GDP

Powell’s assessment of the U.S. economy was backed up when the government reported that GDP rose 2.6 percent in the fourth quarter, a slowdown from the third quarter’s 3.4 percent but still above the forecast of 2.2 percent. For all of 2018, the economy expanded 2.9 percent compared to 2.2 percent in 2017; the Fed expects GDP to slow to 2.3 percent in 2019.

Q4 earnings

With 97 percent of S&P 500 companies having reported, fourth-quarter earnings are up 12.01 percent from a year earlier, according to Bloomberg. Assuming that holds up, it will be the fifth consecutive quarter of year-over-year double-digit growth.

Brexit

With Brexit now less than a month away, Jeremy Corbyn, the leader of the Labour Party, backed a second referendum, not long after nine of his members resigned to join a new party. And Prime Minister Theresa May said she would agree to a delay in Brexit if Parliament again rejected her plan; previously she has taken a hard line on the deadline, partly as a negotiating tactic with an antagonistic Parliament and a steadfast European Union.

AT&T wins, GE sells, Amazon to expand (again), and Lyft’s files its IPO

On the corporate front, a federal appeals court denied the Justice Department’s attempt to stop AT&T’s $80 billion acquisition of Time Warner, which will now move ahead. On Monday the struggling GE sold its biopharmaceutical business to Danaher for $21.4 billion, sending GE’s shares up 6.4 percent for the day. GE also said it was going to cut 30,000 employees next year; it had 283,000 employees worldwide at the end of 2018. Amazon announced it was going to open a nationwide chain of grocery stores. And Lyft filed for an IPO last week during a year of what are expected to be high profile filings from companies including Uber and Pinterest.

In other news, personal income dipped 0.1 percent in January month-over-month after rising 1.0 percent in December, the biggest gain since 2012 (both reports were issued last week because of the shutdown). Wages and salaries increased 0.3 percent in January following a 0.5 percent gain in December. Personal consumption expenditures (PCE) were down 0.5 percent in December from November, but the PCE price index was up 0.1 percent in December and 1.7 percent from a year earlier. Core PCE rose 0.2 percent for the month and 1.9 percent for the year. The Institute for Supply Management’s manufacturing index fell to 54.2 in February from 56.6 in January; any reading above 50 indicates expansion. Factory orders were up 0.1 percent in December from November, but orders ex-transportation fell 0.6 percent. Orders for non-defense capital goods ex-aircraft declined 1 percent in December from the month before, while orders for durable goods advanced 1.2 percent. Wholesale inventories rose by 1.1 percent in December from November, the best showing since 2013; retail inventories were up 0.9 percent. Housing starts fell 11.2 percent in December from November to an annualized 1.078 million, the lowest level since September of 2016, and were off 10.9 percent year over year. For all of 2018, single family starts were up 2.8 percent compared to an 8.2 percent gain in 2017. Building permits were up 0.3 percent in December from November. The National Association of Realtors said pending home sales rose 4.6 percent in January from December to a reading of 103.2 but were down 2.3 percent from a year earlier. The S&P CoreLogic Case-Shiller home price index advanced 4.7 percent in December from December of 2018. The Conference Board’s consumer confidence index rose to 131.4 in February from January’s 121.7, well above expectations, but the University of Michigan’s final consumer sentiment reading for February was 93.8 compared to the preliminary reading of 95.5. And first-time jobless claims were up 8,000 for the week ending February 23rd to 225,999; the four-week moving average fell 7,000 to 229,000.

A look ahead

This week’s releases will include the latest on construction spending, the ISM’s nonmanufacturing index, new home sales, the trade gap, the Fed’s “Beige Book,” nonfarm productivity, consumer credit, and the unemployment rate for February, forecast to come in at 4 percent compared to 3.9 percent in January.

Commentary is written to give you an overview of recent market and economic conditions, but it is only our opinion at a point in time and shouldn’t be used as a source to make investment decisions or to try to predict future market performance. To learn more, click here.