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Stocks Set New Records on Strong Economic News For the week of May 6, 2019

Key Market Data

04/26/2019 05/03/2019 One Week Change YTD One Year
S&P 500 Index 2,939.88 2,945.64 +0.20% +18.26% +14.26%
MSCI EAFE Index 1,915.65 1,918.81 +0.16% +13.30% -1.99%
Barclays Capital U.S. Aggregate Bond Index 2,107.33 2,106.01 -0.06% +2.90% +5.33%
10-year Treasury Note Rate 2.499% 2.526% +2.7 basis points -15.9 basis points -42.1 basis points

Major stock indexes finished this past week within a hair of records they’d set just days earlier thanks to surprisingly strong first-quarter earnings news and a better than expected GDP reading. A strong jobs report on Friday turned stocks around after a mid-week dip. The Nasdaq hit a new peak and the S&P 500 finished just 0.01 percent from the record it set on Tuesday. For the first four months of 2019, the Dow was up 14 percent, its best start since 1999; the Nasdaq gained 22 percent, its strongest opening four months since 1991; and the S&P 500 advanced 18 percent, the fastest such start since 1987.

On Tuesday, President Trump enjoined the Federal Reserve to cut its rate by a full percentage point to keep the economy rolling, but, at the end of its two-day session on Wednesday, the Fed left its rate unchanged — and Chairman Jerome Powell said the Fed was a “nonpolitical institution.” The Fed’s statement indicated that it was unlikely to raise its rate any time soon, and Mr. Powell, at his post-meeting news conference, described the issue of stubbornly low inflation as “transitory.” He said the economy “continues to be on a healthy path,” and added, “We don’t see a strong case for moving in either direction.” Mr. Powell also kept his record intact: every rate decision that has been made since he became chairman in 2018 has been unanimous. The White House continued its campaign after the meeting, with Vice President Mike Pence saying that because the economy was “roaring” this was “exactly the time not only to not raise interest rates, but we ought to consider cutting them.”

Another would-be nominee steps down

The Fed was also in the news when, for the second time in two weeks, one of President Trump’s prospective nominees for its Board of Governors withdrew because of GOP opposition. Stephen Moore followed Herman Cain in saying he would not pursue the job after concern about some of his writings about women. Senator Lindsey Graham (R, SC) predicted, “It will be a very problematic nomination.”

The jobless rate hits a 50-year low

Stocks had their best day of the week on Friday after the Labor Department said that 263,000 jobs had been created in April, while the jobless rate declined to 3.6 percent, its lowest level since December of 1969. The only number that did not surprise on the upside was wages: they were up 3.2 percent from a year earlier compared to the estimate of a 3.3 percent increase.

Putting pressure on China

After last week’s session in Beijing, Chinese and American negotiators will meet this week in Washington. On Sunday, President Trump raised the stakes ahead of the meeting, saying Friday that he would increase tariffs on $200 billion in Chinese goods from 15 percent to 25 percent. He also threatened to place 25 percent tariffs on another $325 billion in goods.

The USMCA may be on the ropes

The United States-Mexico-Canada Agreement (USMCA), President Trump’s plan to replace the North American Free Trade Agreement (NAFTA), appeared to be on the ropes after Speaker of the House Nancy Pelosi (D, CA), said she wouldn’t bring the plan to the floor for a vote unless changes were made. And Mexico said it was “inevitable” that ratification would be delayed unless the U.S. ends its tariffs on aluminum and steel. So far, none of the three countries involved have approved the new deal that was proposed late last year.

Microsoft soars, Alphabet disappoints, Buffet backs Occidental, Tesla raises cash

On Tuesday, Microsoft became the second company after Apple to close with a market valuation of more than $1 trillion (it had previously passed the trillion-dollar mark in intraday trading). Alphabet’s stock fell after its weakest earnings report since 2015. Warren Buffett said that Berkshire Hathaway would back Occidental in its bidding war with Chevron to take over Anadarko Petroleum. And, after a disappointing first-quarter report, Tesla tested the market and successfully raised $2.35 billion late last week with a stock and bond offering.

In other news, consumer spending rose 0.9 percent in March from February, the biggest month-over-month gain since August of 2009. The price index for personal consumption expenditures was up 0.2 percent in March from the month before and 1.5 percent from a year earlier, below the Fed’s target of 2 percent for inflation. Core PCE, less food and energy, was flat month over month and up 1.6 percent for the year. Incomes rose 0.1 percent while the household saving rate declined to 6.5 percent. The Institute for Supply Management said its manufacturing index fell to 52.8 in April from 55.3 in March, the lowest reading since October of 2016; any reading above 50 indicates expansion. The ISM’s nonmanufacturing index was 55.5 in April compared to 56.1 in March. Factory orders rose 1.9 percent in March, above expectations and the biggest increase since August. Orders for durable goods advanced 2.6 percent, core factory orders rose 0.8 percent, and orders for nondefense capital goods excluding aircraft were up 1.4 percent. Productivity increased 3.6 percent in the first quarter from the quarter before and 2.4 percent from the first quarter of 2018. Construction spending declined 0.9 percent in March from February. Vehicle sales came in at an annualized rate of 16.43 million in April, down 5.8 percent from March and down 4.5 percent from a year earlier. The S&P CoreLogic Case-Shiller home price index was up 4 percent for the previous year in February compared to 4.2 percent in January. Pending home sales rose 3.8 percent in March from the prior month but were off 3.2 percent from a year earlier. The Conference Board’s consumer confidence index hit 129.2 in April after March’s 124.2. And first-time jobless claims for the week ending Apr. 27, 2019 were unchanged at 230,000; the four-week moving average rose 6,500 to 212,500.

A look ahead

This week’s releases will include the latest on job openings, consumer credit, the producer and consumer price indexes, the trade balance, wholesale inventories, and consumer comfort.

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.