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The S&P 500 Just Had its Best Quarter in Years For the week of April 1, 2019

Key Market Data

03/22/2019 03/29/2019 One Week Change YTD One Year
S&P 500 Index 2,800.71 2,834.40 +1.20% +13.65% +9.48%
MSCI EAFE Index 1,882.97 1,875.43 -0.40% +10.15% -3.03%
Barclays Capital U.S. Aggregate Bond Index 2,099.93 2,106.83 +0.33% +2.94% +4.48%
10-year Treasury Note Rate 2.441% 2.406% -3.5 basis points -27.9 basis points -33.4 basis points

There’s been plenty of talk — and some hard evidence — about a global economic slowdown. But, based on the stock market’s performance during the first quarter, American investors remain confident, largely because of the Federal Reserve’s “go slow” approach to raising its benchmark rate. As a result, the Dow, Nasdaq, Russell 2000, and S&P 500 all gained at least 10 percent over the first three months of the year. The S&P 500 advanced 13 percent, its best quarter since 2009. And on Friday, the last day of the quarter, Lyft’s IPO indicated that investor confidence remains undented as the ride-sharing company’s stock soared 8.7 percent on the first day of trading, a good sign for what will be a flurry of high-profile IPOs in 2019. U.S. crude oil had its best quarter since 2002, jumping 32 percent. Even so, the 10-year Treasury remained near its lowest level in more than a year as some investors chose to hedge their bets.

Brexit remains stalled

Britain’s politicians still haven’t made any progress on closing a Brexit deal, which was supposed to happen on Friday. But that doesn’t mean they’ve been idle. In a week of high drama, Prime Minister Theresa May offered to step down if Parliament approved her plan, but it was rejected for a third time — as were eight other plans offered by members of Parliament. May said, “The implications of the House’s decision are grave.” Unless the European Union offers an extension, or Parliament comes up with and approves a plan of its own this week, Great Britain will leave the EU on Apr. 12 without an agreement in place. Jeremy Corbyn, the leader of the Labour Party, said, “The deal now has to change,” adding, “If the prime minister cannot accept that, then the prime minister must go.”

The Fed’s next steps

Though the Fed has said it was unlikely to raise its rate this year, the White House has started pushing for a rate cut. On Friday Larry Kudlow, the National Economic Council Director, urged the Fed to lower its rate by a half a percent to boost US economic growth, “as a precaution.” President Trump doubled down, tweeting that GDP and stock prices would be “much higher” if the Fed hadn’t “mistakenly raised interest rates.” Neel Kashkari, the President of the Federal Reserve Bank of Minneapolis, responded Friday by telling The Wall Street Journal, “I don’t think we should be overreacting to short-term data.” Nonetheless, the CME Group now estimates that there’s a 71.1 percent chance of a rate cut this year.

China: the trade talks continue — and a welcome sign of growth

The American team was in Beijing last week to continue to hammer away at trade agreement, with the main sticking point reportedly being cybersecurity. China’s delegation is scheduled to come to Washington, D.C., this week. The two sides are still aiming to close a deal by the end of April. And in a positive sign for China’s economy, on Sunday the government reported that its manufacturing purchasing managers’ index rebounded from 49.2 in February to 50.5 in March, well above the forecast; any reading above 50 indicates expansion. The nonmanufacturing PMI for services also rose in March, hitting 54.8 compared to February’s 54.3.

GDP growth, personal income, and spending all fall short of the mark

Meanwhile, there were some signs of a slowing American economy last week. The government’s latest estimate for fourth-quarter growth came in at 2.2 percent compared to the initial 2.6 percent, and while the White House is still forecasting GDP growth of 3 percent this year, the Fed has lowered its estimate to 2.1 percent. Consumer spending was up 0.1 percent in January from December’s 0.6 percent dip, however that was still below expectations. Personal income advanced 0.2 in February from January, which was also short of the forecast. The core personal consumption price index, excluding food and energy, advanced 0.1 percent in January from December and was up 1.8 percent from a year earlier. And first-quarter earnings are currently forecast to be down 3.8 percent from a year earlier according to FactSet, which would be the first year-over-year decline since the second quarter of 2016.

Lyft sets the stage, Apple branches out, Sloan steps down

As noted, Lyft had a strong first day of trading, setting the stage for a series of upcoming IPOs by Peloton, Pinterest, Postmates, Slack, and Lyft’s rival in the ride-sharing business, Uber. Apple, fighting slowing sales of its iPhone, announced that it was moving into the content arena with a new video streaming service. And Timothy Sloan, the CEO of Wells Fargo since 2016, unexpectedly resigned last week. The bank, the nation’s fourth largest, said it would look outside the company for a new leader to help address its tarnished image.

In other news, the trade gap contracted 14.6 percent to $51.1 billion in January from December as imports declined and China’s shipments to the United States dipped 6.4 percent to their lowest level since 2010. The S&P CoreLogic Case-Shiller home price index was up 4.3 percent in January from a year earlier. New home sales rose 4.9 percent to 667,000 in January from December, another sign that lower mortgage rates may be moving the market. December’s total was revised up from 607,000 to 636,000. However, pending home sales were off 1 percent in February from January and down 5 percent from February of 2018. Housing starts fell 8.7 percent in February from January and were off 9.9 percent from a year earlier. Building permits dipped 1.6 percent from the month before in January and fell 2.0 percent from January of 2018. The Conference Board said its consumer confidence index was 124.1 in March compared to February’s 131.4, but the University of Michigan’s consumer sentiment index increased to 98.4 in March, up from the previous month’s reading of 93.8. First-time jobless claims for the week ending March 23 fell 5,000 to 211,000; the four-week moving average was down 3,250 to 217,250.

A look ahead

This week’s releases include the latest on retail sales, the Institute for Supply Management’s manufacturing and nonmanufacturing indexes, construction spending, business inventories, orders for durable and capital goods, vehicle sales, consumer credit, and the jobless rate, which is forecast to remain unchanged at 3.8 percent.

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.