Arrow Created with Sketch. Market Commentary

Stocks Move Close to All-Time Highs For the week of April 15, 2019

Key Market Data

04/05/2019 04/12/2019 One Week Change YTD One Year
S&P 500 Index 2,892.74 2,907.41 +0.51% +16.67% +11.33%
MSCI EAFE Index 1,911.40 1,915.67 +0.22% +12.70% -2.64%
Barclays Capital U.S. Aggregate Bond Index 2,100.60 2,098.12 -0.12% +2.52% +4.30%
10-year Treasury Note Rate 2.496% 2.566% +7.0 basis points -11.9 basis points -27.1 basis points

Trading volumes slowed early last week as investors waited to see first quarter earnings from some of the nation’s major banks and fretted about the International Monetary Fund’s lower estimates for global growth this year. Their patience was rewarded on Friday when JPMorgan Chase posted record earnings and PNC and Wells Fargo both beat analysts’ expectations. Disney’s stock also helped as it hit a new high after it announced it will launch a video streaming service in November that will go head-to-head with Netflix. As a result, the major indexes rose sharply on Friday and the S&P 500 and Nasdaq finished up for the week — while the Dow, after a 269-point rally, was only off 0.1 percent. Better still, both the S&P and Dow have now moved back to within 2 percent of their all-time highs. Even so, the first-quarter earnings of S&P 500 companies are expected to decline 4.3 percent from a year earlier, according to FactSet, which would mark the first year-over-year decline since 2016.

The Fed’s rates – and a nominee in peril

Federal Reserve minutes, released last week, indicated that because real GDP was likely “to step down from the pace seen over 2018,” the Fed was unlikely to raise its rate “for the remainder of the year.” In fact, Wall Street is now forecasting one rate cut in 2019. Meanwhile, four GOP Senators said they would not support the president’s nomination of Herman Cain to the Fed’s board, all but assuring that he won’t win congressional approval.

The ECB stands pat — for now

The European Central Bank (ECB) left its rate unchanged last week, but ECB President Mario Draghi said that the bank might act if the economic situation in the Eurozone continues to worsen, noting, as is his wont, that the ECB has “plenty of instruments” at its disposal.

The trade talks — and the threat of new tariffs

On Saturday, Treasury Secretary Steven Mnuchin said that Chinese and American negotiators were “getting close to the final round of concluding issues” in the ongoing trade talks, and that the idea of a “detailed enforcement office” had been agreed to. However, just as the trade talks with China seem to be making progress, President Trump threatened to put tariffs on $11.2 billion in exports from the European Union — and the EU promised to retaliate — pending a ruling by the World Trade Organization (WTO) about illegal subsides for Airbus. The president tweeted, “The EU has taken advantage of the US on trade for many years. It will soon stop!” The WTO case about EU subsidies for Airbus and American subsidies for Boeing has been going on for 14 years and a verdict is expected soon, after which the new tariffs may, or may not, be put in place.

An extended Brexit extension

Britain’s Prime Minister Theresa May managed to get an extension from the European Union on the Brexit deadline to Oct. 31 – she had actually been aiming for Jun. 30, but the EU concluded that she was unlikely to make any headway with Parliament by then. That means that Britain will participate in the elections for the European Parliament in May to the annoyance of many Brexiteers who had hoped to be free of the EU by then.

Global growth slows

Citing “trade tensions” and “uncertainty across many economies,” the IMF lowered its forecast for global growth in 2019 to 3.3 percent compared to 3.5 percent in January, which would be the slowest pace since 2016 (after 3.6 percent in 2018). The estimate for the U.S. was cut from 2.5 percent to 2.3 percent (it was 2.8 percent last year). The Fed’s most recent estimate is 2.1 percent, while the White House is forecasting 3 percent. The forecast for the Eurozone was cut from 1.6 percent to 1.3 percent, while China’s was raised to 6.3 percent from 6.2 percent.

Oil rises, Chevron acts

The price of U.S. crude was up for the sixth week in a row and has now jumped 41 percent in 2019. And Chevron said it was going to buy Anadarko Petroleum for $33 billion. By buying Anadarko, Chevron will acquire oil and natural gas projects in Mexico, Mozambique, Algeria, and Ghana, as well as Colorado, New Mexico, and Texas.

In other news, the consumer price index rose 0.4 percent in March from February and was up 1.9 percent for the past year, indicating that inflation remained tame and that the Fed would be less likely to raise its rate this year. Core CPI, less food and energy, increased 0.1 percent from February and 2.0 percent for the year. Real average hourly earnings were up 1.3 percent from February of last year. Mainly because of higher energy costs, the producer price index advanced 0.6 percent in March from the month before and 2.2 percent for the year; core PPI was up 0.3 percent for the month and 2.4 percent for the year. Import prices climbed 0.6 percent in March from February, while export prices rose 0.7 percent. Small business optimism was 101.8 in March after February’s 101.7. The University of Michigan’s preliminary consumer confidence reading for April was 96.9 compared to 98.4 in March. The Labor Department said there were 7.1 million job openings in February compared to 7.6 million in January, but openings exceeded applicants for the twelfth month straight. And first-time jobless claims fell 8,000 to 196,000 for the week ending Apr. 6, while the four-week moving average declined 7,000 to 207,000: both figures were at their lowest point since 1969.

A look ahead

This week’s releases will include updates on industrial production and capacity utilization, the trade balance, wholesale and business inventories, housing starts and building permits, the Conference Board’s leading economic index, and the Fed’s Beige Book report on the economic conditions in its 12 districts.

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.