Weekly market update
The major averages suffered another week of losses as tariffs and trade war concerns are holding the markets at bay. The big picture for the economy still looks upbeat with a hot labor market, benign inflation and better manufacturing numbers. Combine that with expectations that Q2 earnings season is going to be strong and you would think the markets would celebrate – but this is not the case. There is also lingering concern over the FED’s two-day meeting followed by the announcement on rates on Wednesday. More turmoil for the Trump administration is also causing some angst for traders and investors as we watch for news of who will be leaving the administration next.
ECONOMY
Economists are searching for answers after a mixed bag of economic data last week. We are seeing a big divergence between the “soft data” (surveys and sentiment) and the “hard data” (retail sales, inflation, housing, industrial production).
According to the National Federation of Independent Business (NFIB) index, small business owners are showing “unprecedented confidence” in the economy as the optimism index continues at record high numbers. That same confidence can also be seen in the latest read on consumer sentiment which soared in March. That optimism was not seen by the homebuilders as the homebuilder sentiment fell for the 3rd straight month.
But where the rubber meets the road is a different story. Housing starts and building permits were well below expectations once again. It is the same story – demand is solid, but builders can’t get the skilled labor to keep up.
The latest read on inflation shows that at the wholesale level (PPI) it went down while at the consumer level (CPI) remained flat. The YoY numbers were only slightly higher than expectations.
The latest retail sales figures were a disappointment as they have now fallen for three straight months. This is causing some concern for the growth story – the consumer is supposed to make up the biggest portion of GDP and if they aren’t out spending, this economy isn’t going anywhere – we’ll see.
INTERNATIONAL
Across the pond, European markets finished mixed last week as investors digested the latest turmoil out of Washington and disappointing inflationary data from both the U.S. and Europe – European inflationary data actually fell, much to the dismay of the ECB.
Across the other pond, the threat of trade wars with the U.S. also weighed on investor’s minds and most Asian markets finished lower.
WHAT WE’LL BE WATCHING
Traders and investors are continuing to tread lightly as worries about a possible trade war are still on the radar. The FOMC meets this week and the markets are pricing in a 25 basis point rate hike. I’ll be paying attention to how the yield curve acts as shorter-dated maturities rates continue to rise faster than longer dated, causing the yield curve to flatten. Historically, a flattening yield curve hints at the possibility of a recession, but at this time, we don’t see a recession on the horizon.
I feel better about the markets when we don’t have to worry about the Trade Wars, or Interest Rates, rate hikes, inflation or the next Trump advisor quitting or being fired, so we can focus on getting back to new all-time highs.
Have a Great Week – and stay tuned – we’ll keep you posted.
Todd Day, Portfolio Manager
Horizon Financial Services, LLC
March 20, 2018
