Weekly market update
On Friday “Fear grips Wall Street as the stocks plunged to levels not seen in two weeks!”
Weak economic data and geopolitics kept stocks in check overpowering a brief mid-week rally fueled by dovish FED commentary. In fact, part of the selloff that occurred late in the week was fueled in part as investors realized the FED was even more dovish than expected. Oh, and U.S-China trade woes.
First, let me get the trade deal thoughts out of the way so we can talk about the markets.
This is how confusing things are getting on the China trade deal…on Tuesday the 19th, within two hours we saw these two headlines!
Bloomberg—U.S. officials see China walking back from trade offers.
Dow Jones—U.S. and China in final stages of trade talks.
And then on Wednesday:
TRUMP SAYS WE ARE TALKING ABOUT LEAVING TARIFFS ON CHINA FOR A LONG PERIOD OF TIME.
And then this:
But…
TRUMP SAYS DEAL IS COMING ALONG WITH CHINA.
Okay, enough with trade headlines—last week the major averages were plagued by the slowing global growth syndrome and FedEx got it all started. A top executive at FedEx is flagging serious concerns in the global economy. The multinational package delivery service reported declining international revenue as a result of unfavorable exchange rates and the negative effects of trade battles.
“Slowing international macroeconomic conditions and weaker global trade growth trends continue, as seen in the year-over-year decline in our FedEx Express international revenue,” Alan B. Graf, Jr., FedEx Corp. Executive Vice President and Chief Financial Officer, said in a statement. Nike also echoed the same sentiment.
The FED wrapped up its two-day meeting Wednesday and did not raise interest rates. Markets digested FED commentary on lowering their economic forecasts and to say there will be no more hikes this year. FED Chair Powell’s comments were startingly more dovish than the markets expected as they slashed their growth forecasts and announced an end to balance sheet reduction sooner than expected.
Treasury yields fell sharply following those comments. The 10-year yield fell to 2.42% (a 14-month low) and the spread between the 3-month and the 10-year inverted Friday—translated like this—you can get more yield for loaning the government money for 3 months than you can for loaning them money for 10 years. This stoked recession fears. Ladies and gentlemen the Captain has turned on the seatbelt light—buckle up!
On the economic front, data was mixed last week but showed more signs of softening. The Philly FED business activity index had a nice bounce back from the previous read and existing home sales also had a nice bounce. But, on the light side, manufacturing PMI’s and service PMI’s both disappointed. The manufacturing number reached a 21-month low. Factory orders also disappointed. These readings are still expansionary but they are definitely weakening.
Looking ahead, market participants will be focused on those lingering growth concerns as well as all of the political noise, so be prepared. We get more housing data this week along with a fresh read on inflation and consumer sentiment. So, stay tuned and we’ll keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
March 25, 2019
