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Financial Markets Commentary For the week of April 8, 2019

Key Market Data

03/29/2019 04/05/2019 One Week Change YTD One Year
S&P 500 Index 2,834.40 2,892.74 +2.06% +16.02% +10.81%
MSCI EAFE Index 1,875.43 1,911.40 +1.92% +12.36% -1.71%
Barclays Capital U.S. Aggregate Bond Index 2,106.83 2,100.60 -0.30% +2.64% +4.53%
10-year Treasury Note Rate 2.406% 2.496% +9.0 basis points -18.9 basis points -33.7 basis points

Worries about a global economic slowdown have lately led to the use of the “R” word, as in recession, by some analysts and commentators. But last week’s positive news about manufacturing and, especially, jobs, seem to have dispelled that fear for now. As a result, all the major indexes posted strong gains, and the S&P 500 begins this week with a seven-day winning streak, its longest since October of 2017.

February’s jobs report has been particularly concerning, with only 20,000 jobs added. On Friday, the Labor Department revised that figure to a still modest 33,000. However, more importantly, it said that 196,000 jobs were created in March, well above the forecast. The jobless rate remained unchanged at 3.8 percent. Wages were up 3.2 percent over the last year.

The news about jobs came during an ongoing debate about the Federal Reserve’s role in the nation’s economic health. President Donald Trump again accused the Fed of inhibiting growth with its rate hikes. On Friday, the president said, “I personally think the Fed should drop rates,” and enjoined it to resume its quantitative easing program, which the President said would catapult the economy like a “a rocket ship.” The president also said he was going to nominate former presidential candidate Herman Cain to serve on the Fed’s board. This came shortly after Trump said he would nominate Stephen Moore to the Fed. Both Cain and Moore have been critical of the Fed’s rate hikes and are staunch supporters of the president and his policies. Yet, neither have been formally nominated.

The trade talks

The trade talks with China moved to Washington last week, and the two sides were evidently still on track to close what Trump called a potentially “epic” deal, possibly by the end of this month. U.S. Trade Representative Robert Lighthizer agreed that substantial progress had been made, but cautioned that there were “major, major issues left” to resolve. Meanwhile, the World Trade Organization (WTO) said that, deal or not, the trade war between China and the United States would take a toll on global exports and imports this year. Because of the conflict, the WTO lowered its estimates for import/export growth in 2019 to 2.6 percent from its previous estimate of a 3.7 percent gain; imports and exports were up 3 percent in 2018.

Mexico and the ACA

After pushback from Republican lawmakers, President Trump retreated from his threat to close the border with Mexico to stop the flow of immigrants and drugs. For instance, Senate Majority Leader Mitch McConnell (R, KY), said, “Closing down the border would have a potentially catastrophic economic impact on our country.” The president said he wouldn’t close the border this year but issued a one-year warning after which he said he might raise tariffs on cars from Mexico if the issues weren’t addressed. He also put off his plan to overturn the Affordable Care Act this year because GOP leaders thought moving forward would hurt the party’s chances in the 2020 elections. The party’s moves to undo the ACA are seen by some Republicans as one of the reasons for the loss of the House in last year’s midterm elections.

Brexit, continued

The impasse over Brexit continued last week despite Prime Minister Theresa May’s effort to reach across the aisle and work with her nemesis Jeremy Corbyn, the head of the Labour Party. May is heading to Brussels this week where she will again ask the European Union for an extension to Jun. 30. As of now, Britain will leave the EU without an agreement on Apr. 12 unless Parliament passes May’s Brexit plan, which it has already rejected three times. Donald Tusk, the President of the European Council, reportedly wants to offer a “flextension,” a one-year extension that would end early if Parliament approves May’s plan. But any extension would have to win the approval of all the EU’s member nations.

Move Over Apple

For the first time in 30 years, Saudi Arabia’s oil company Aramco released its closely held financials, which showed that it was far and away the world’s most profitable company with net profit of $111 billion in 2018 compared to Apple’s $60 billion. The numbers were released in a prospectus for a bond sale.

In other news, the Institute for Supply Management said that its manufacturing PMI rose to 55.3 in March from February’s 54.2, above the forecast. The ISM’s manufacturing new orders index climbed to 57.4 from 55.5, and the employment index jumped to 57.5 from 52.3. The ISM also reported that its services PMI fell to 56.1 in March from 59.7 the month before, the lowest reading since August of 2017 (any reading above 50 still indicates expansion). Retail sales declined 0.2 percent in February, but the figure for January was revised to a 0.7 percent increase from the original 0.2 percent gain. Retail sales were up 2.2 percent from a year earlier. According to WardsAuto, US car sales declined 2 percent in March year over year, and some analysts think that sales in 2019 will fall below 17-million vehicles for the first time since 2014. Orders for durable goods fell 1.6 percent in February from January; a larger drop was forecast. Orders for non-defense capital goods, excluding aircraft, dipped 0.1 percent. Construction spending increased 1 percent in February from January’s reading which was revised up to 2.5 percent from the original reading of 1.3 percent. Business inventories advanced 0.8 percent in January from the month before. U.S.-based employers cut 190,410 jobs during the first quarter, up 10.3 percent from the fourth quarter and the highest quarterly total since the third quarter of 2015. And first-time jobless claims for the week ending Mar. 30 fell 10,000 to 202,000, their lowest level since December of 1969; the four-week moving average fell 4,000 to 213,500.

A look ahead

This week’s releases will include the latest on factory orders, small business optimism, job openings, the consumer and producer prices indexes, and consumer sentiment, as well as the minutes of the Fed’s March meeting.

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.