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Financial Markets Commentary For the week of March 18, 2019

Key Market Data

03/08/2019 03/15/2019 One Week Change YTD One Year
S&P 500 Index 2,743.07 2,822.48 +2.89% +13.11% +4.80%
MSCI EAFE Index 1,839.23 1,890.31 +2.78% +10.59% -4.44%
Barclays Capital U.S. Aggregate Bond Index 2,077.11 2,081.88 +0.23% +1.72% +3.72%
10-year Treasury Note Rate 2.630% 2.589% -4.1 basis points -9.6 basis points 24.0 basis points

During a week in which the front pages were dominated by three somber stories — the crash of the Boeing 737 Max 8 in Ethiopia, the college admissions scandal, and the horrific terrorist attack in New Zealand — the major indexes all quietly advanced, with the S&P 500 hitting its high for 2019 by the end of the day on Friday. As a result, all three of the indexes are now up at least 10 percent so far this year.

The stock market’s gyrations over the past few weeks have had a lot to do with the progress, or not, of the trade talks between China and the United States. Last week there were signs that the two sides are moving ahead — and that they still have plenty of work to do. Treasury Secretary Steven Mnuchin, who said that he had been continuing to talk to China’s lead negotiator Vice Premier Liu He, noted Thursday that, “We want to get it right; that’s more important than the exact timing, but I suspect we’ll have it resolved in the near future.” President Trump also weighed in late last week, saying, “We’ll have news on China. Probably one way or the other, we’re going know over the next three to four weeks.” A proposed summit between Trump and China’s President Xi Jinping to sign off on the deal has not yet been scheduled.

China’s economy is slowing down, officially

Meanwhile, as China’s National People’s Congress came to a close last week, Premier Li Keqiang admitted that there was a slowdown, saying, “We must take strong measures to cope with the current downward pressure.” As the latest evidence of that showdown, China’s industrial output fell to a 17-year low for the first two months of 2019. Li said that the government’s strategies to bolster growth would include deregulation and cutting corporate taxes, but not government spending and lending. The NPC also passed a bill protecting the intellectual property of foreign companies doing business in China, a key sticking point in the negotiations with the United States, though Li was adamant that China was innocent of all such charges. And China was in the news early last week when it became one of the first countries to ground the Boeing 737 Max 8, with Trump later following suit. Despite falling for much of the week, Boeing’s stock rebounded somewhat after the company announced it was rolling out a software update for the Max line ahead of schedule.

The Brexit breakdown

With the official date of the Brexit less than two weeks away, chaos descended on Great Britain last week as Parliament again rejected Prime Minister Theresa May’s exit plan. After getting some last-minute concessions from the European Union, she had hoped that the looming deadline would pressure Parliament to give her the votes she needed, but her plan was once more decisively rejected, with members of her own party again deserting her. Parliament then voted not to leave without a deal and requested an extension from the EU until the end of June, or longer if no plan is negotiated. What will happen next — May losing her job? a second referendum? — remains up in the air, as does the fate of Parliament’s request for an extension which requires the unanimous approval of EU member nations.

A “reset” year for GE, new woes for VW

In corporate news, struggling GE forecast lower profits, describing 2019 as a “reset,” year. And the Securities and Exchange Commission filed charges against Volkswagen and its former CEO for defrauding the public about its emissions, saying the company knew about the fraud as early as 2007; VW has already paid more than $25 billion in penalties and costs relating to the case.

Retail sales rebound, manufacturing production doesn’t

Retail sales unexpectedly rebounded in January, climbing 0.2 percent from December’s revised drop of 1.6 percent (which was partly attributable to the government shutdown), and sales were up 2.3 percent from a year earlier. The Federal Reserve reported that industrial production rose 0.1 percent in February from the month before after a decline of 0.4 percent in January. Manufacturing was down for the second month in a row, dropping 0.4 percent. Total industrial production increased 3.5 percent from February of 2018; capacity utilization fell 0.1 percent to 78.2 percent. The consumer price index was up 0.2 percent in February from January after three months of flat readings; core prices, excluding food and energy, rose 0.1 percent. For the year, the CPI advanced 1.5 percent, its lowest reading since December of 2016, while core CPI climbed 2.1 percent. The producer price index increased 0.1 percent in February, mostly because of higher gas prices. Core PPI, excluding food and energy, was also up 0.1 percent. For the year, PPI rose 1.9 percent and core PPI gained 2.5 percent. Orders for nondefense capital goods excluding aircraft were up 0.8 percent in January, the best showing in eight months. Overall, orders for durable goods were up 0.4 percent; a decline had been forecast. Excluding transportation, orders fell 0.1 percent. Construction spending had its biggest gain in nine months, rising 1.3 percent in January. In a report delayed by the shutdown, the government said that new home sales fell 6.9 percent in January to an annual rate of 607,000. New home sales were down 4.1 percent from a year earlier and the median price of a house was off 3.8 percent from January of 2018. Business inventories climbed 0.6 percent in December from November (another release delayed by the shutdown). The University of Michigan’s consumer sentiment index jumped to 97.8 in early March after finishing February at 93.8, continuing its recovery from January’s 91.2, which was the lowest reading since 2016. The government said that there were 7.6 million job openings at the end of January. And first-time jobless claims for the week ending March advanced 6,000 from the week before to 229,000; the four-week moving average fell 2,500 to 223,750.

A look ahead

This week’s releases will include the latest on factory orders, the Conference Board’s Leading Index, existing home sales, and wholesale inventories. In addition, the Fed will meet on Tuesday and Wednesday, but it’s not expected to raise its benchmark rate.

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.