Weekly market update
Global stock markets rose on upbeat U.S. economic data and signs of progress in China/U.S. trade negotiations. The Dow gained 1.95%, the S&P 2.09%, the NASDAQ 2.73% and the Russell 2000 gained 2.8%. The S&P 500 had its longest winning streak in over 18 months. Following last week’s nice gains for the major averages, a number of them are pushing into extremely overbought territory.
On the economic front, a better than expected jobs report headlined the data. We added 196,000 new jobs, the unemployment rate remained at 3.8%, but wage growth slowed to 3.2%, down from 3.4%. The jobs report marked a solid rebound from an anemic February and underscored the continued robustness of the U.S. labor market. Unemployment claims fell once again and are at the lowest level since December 1969. As a percent of the labor force, jobless claims have never been lower than today.
The latest retail sales numbers were a disappointment coming in at -2% versus expectations of 2% growth. The ISM manufacturing index for March came in at 55.3, bouncing off a two-year low of 54.2. The rebound was supported by employment, new orders and production. The U.S service sector growth was a sharp contrast to the upbeat ISM reading, falling to its slowest pace since August 2017. Durable goods orders fell 1.6% thanks in most part to the Boeing grounding of the 737 Max. The nondefense aircraft and part new orders plunged -31.1%.
Outside of the U.S, European stocks shook off weaker than expected data out of Germany (industrial production) and lack of any agreement on Brexit with both STOXX 600 and FTSE 100 ending the week 2.5% higher. The data was so poor it helped push the Germany DAX stock market index to the highest levels in nearly two and a half years. This Brexit thing is becoming quite comical. They held a vote on when to hold more votes and then that vote ended in a tie—that’s peak Brexit.
Earnings season is just getting started and the first 22 S&P 500 companies reported 4.1% YoY earnings growth and that is sharply lower than those same 22 companies reported last year—26.9% growth. The good news here—it was negative.
So, this week, earnings reports will kick into high gear with JP Morgan officially getting things rolling. I will be watching the major financial institutions because the spread between the short end of the yield curve and the long end of the yield curve has continued to flatten. The banks borrow on the short end and lend on the long end, resulting in a flatter yield curve which compresses their margins.
We will get the latest read on inflation this week with the Consumer Price Index (CPI) and at the wholesale level, Producer Price Index (PPI). We will round out the week with consumer sentiment on Friday, so stay tuned and we’ll keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
April 9, 2019
