Weekly market update
I’m glad February is behind us – that was the worst February for stocks since 2009.
The Dow and S&P broke a 10-month winning streak. For the NASDAQ, it was the first losing month in eight months.
Volatility – In February, there were four trading days, for the Dow, with an intraday range of 4%+. That’s more than the prior five years COMBINED. In 2017, the S&P 500 had seven days where it moved 1% or more – February had 11.
What’s going on?
There are three factors I believe are impacting the markets right now.
- FED fears – Jerome Powell, our new FED Chair delivered the semi-annual testimony on the economy and monetary policy. His comments were taken a tad more “hawkish” than most expected. He stated the economy was doing great, inflation was starting to show up again and the FED would be on a path of raising interest rates three or four times in 2018. It was one word, however, that set off the program traders – “overheating”. He didn’t mean the economy was overheating, but it could and they would be ready. Since those comments last Tuesday, the Dow fell 1183 points by Thursday’s close. Nothing else changed, we were rolling along nicely recovering from the selloff and BOOM!! The markets didn’t focus on the other things he said – “economic outlook remains strong, fiscal policy is becoming more simulative, inflation will move up, wages should increase faster and economic headwinds have become tailwinds.”
- Inflation – sure it is showing up, but the FED’s preferred measure of inflation is the Personal Consumption Expenditure (PCE) and it is just out. PCE growth showed for January 1.5% for the fourth month in a row. So inflation hawks – retract your talons and stand down.
- Tariffs/Trade War – We can’t say we haven’t heard about this before as the President has spoken about this many times – FAIR TRADE. It was the way the message was delivered which absolutely shocked the markets last Thursday and still lingers as of this writing.
Turning to the economy, we got more disappointing news on home sales. New home sales were down 8% and the December and January decline in new home sales is the biggest 2-month drop since the summer of 2013. It confirms the weakness in existing home sales and is likely the beginning of a much larger decline as rising mortgage rates make over-priced houses even more unaffordable.
On the bright side, ISM manufacturing data came in at a 13-year high.
Consumer confidence is at a 17-year high.
Jobless claims are at a 48-year low. That’s right – jobless claims haven’t been this low since 1969.
We have gone full-spectrum this year; in January, everything was wonderful to all of a sudden, nothing on the global landscape looks positive for equities. I can assure you the markets have not “priced in” a trade war, but they are working on it. Other than tax reform, the political atmosphere isn’t offering anything positive. Throw in the FED and their determination to raise rates, the ECB hinting at a more hawkish tone and Japan easing off the gas – thank goodness we have all that good economic data.
This could be one interesting spring – which is just around the corner.
Stay tuned and we’ll keep you posted.
Todd Day, Portfolio Manager
Horizon Financial Services, LLC
March 6, 2018