March 11, 2019
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ECONOMIC SUMMARY
Total employment gained only 20,000 new hires in February, according to the latest report from the Bureau of Labor Statistics. There were 311,000 new hires in January. The unemployment rate fell 0.2 percentage point to 3.8% as the number of unemployed persons decreased by 300,000 to 6.2 million. Average hourly earnings rose by $0.11 to $27.66, following a $0.02 gain in January. Over the year, average hourly earnings have increased by 3.4%.
Housing starts gained some ground in January, jumping up 18.6% over December’s paltry total. Home completions climbed 27.6% from December and building permits increased by 1.4% in January.
Economic activity in the non-manufacturing (services) sector expanded in February, according to the latest Non-Manufacturing ISM® Report On Business®. Business activity and new orders grew over January. However, survey respondents noted that employment and prices fell in February.
For the week ended March 2, there were 223,000 new claims for unemployment insurance, a decrease of 3,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims dropped back to 1.2% for the week ended February 23. The advance number of those receiving unemployment insurance benefits during the week ended February 23 was 1,755,000, a decrease of 50,000 from the prior week’s level.
MARKET RETURNS
DJIA: 25,450.24, down 2.21%
Nasdaq: 7,408.14, down 2.46%
S&P 500: 2,743.07, down 2.16%
Russell 2000: 1,521.88, down 4.26%
Global Dow: 2,940.82, down 2.18%
Fed. Funds: 2.25% -2.50%, unchanged
10-year Treasuries: 2.63%, down 12 bps
MARKET SUMMARY
Stocks performed poorly throughout the week, with the major indexes suffering declines on each of the five trading days. The smaller-cap indexes, which are typically more volatile, fared worst, while the technology-heavy Nasdaq Composite Index stood out for recording its first weekly drop since late December. Volatility, as measured by the Cboe Volatility Index (VIX), rose to its highest level since the end of January, while the S&P 500 Index slipped below its 200-day moving average, a threshold that some technical traders and analysts watch closely.
Within the S&P 500, the typically defensive and interest rate-sensitive real estate and utilities sectors fared best as longer-term bond yields decreased to their lowest levels since the start of the year. Energy stocks were among the worst performers as oil prices fell, and industrials shares suffered from deepening concerns over a global slowdown. Health care shares also performed poorly, weighed down in part by a decline in pharmaceutical giant Pfizer. Transportation stocks, often considered a barometer of global economic activity, were also notably weak. The Dow Jones Transportation Average recorded its longest stretch of daily declines in nearly 50 years, according to Bloomberg.
Indeed, several worrisome signs about the health of the global economy weighed on sentiment during the week. The most pronounced indicator may have been the decision by the European Central Bank (ECB) on Thursday to inject further liquidity into the eurozone’s banking system to spur loan growth and economic activity (see below). Investors also appeared unsettled by China’s announcement of new fiscal stimulus directed at its manufacturing sector.
Hopes that a U.S.-China trade deal would soon be announced seemed to fade during the week, further weighing on markets. Stock futures got a boost on Monday morning from a report in The Wall Street Journal that the two sides were nearing a deal that might be finalized at a summit between the country’s two leaders as early as March 27.
The yield on the benchmark 10-year Treasury note did not react decisively to the payrolls report but decreased substantially over the week in response to the ECB decision and continued dovish remarks from Fed officials. On Friday morning, the 10-year Treasury yield touched its lowest point since January 4. (Bond prices and yields move in opposite directions.) Municipal bond prices rallied alongside Treasuries.
Robust new investment-grade corporate bond issuance caused credit spreads — the additional yield offered by bonds with credit risk over Treasuries with similar maturities — to widen across most sectors. However, the tobacco segment experienced some spread compression on the news that the Food and Drug Administration commissioner — a noted advocate of more forceful regulation of electronic cigarettes and other products — had resigned.
Trading volumes in the high yield bond market were somewhat subdued against a backdrop of modest new issuance and a few negative headlines. Equity weakness also weighed on the performance of the asset class. After several consecutive weeks of positive flows, high yield funds reported net redemptions.
The pan-European STOXX Europe 600 Index fell after the ECB surprised markets by taking a more dovish tone than anticipated in announcing that it would keep interest rates unchanged at least through the end of 2019. For investors, the move seemed to underscore the negative impact that trade tensions and geopolitical concerns have been having on growth in the eurozone and around the globe.
The Nikkei 225 Stock Average fell 577 points (-2.7%) for the week and closed on Friday at 21,025.56 but still ahead 5.1% in 2019. The large-cap TOPIX Index and the TOPIX Small Index also posted losses for the week. Both broader indexes are up about 5% for the year to date. At the close on Friday, the yen stood at ¥110.90 per U.S. dollar, modestly stronger for the week but still weaker versus the ¥109.69 level at the end of 2018.
Mainland Chinese stocks ended a roller-coaster week lower, as poor February trade data and bearish broker calls on two high-flying financial stocks led investors to lock in gains one week after the benchmark indexes entered a bull market. For the week, the Shanghai Composite Index shed 0.8%, while the large-cap CSI 300 Index, considered China’s blue chip index, fell 2.5%. Most of the declines came on Friday, when the Shanghai index fell 4.4% in its biggest one-day drop in five months. That day, Beijing reported that February exports tumbled 20.7%, far worse than the market’s forecast of a 4.8% decline. Imports, meanwhile, fell for the third-straight month and also lagged estimates as imports of key commodities fell across the board.
Portions of the preceding information are reprinted with permission from Broadridge Investor Communication Solutions, Inc. Copyright 2018. Portions of the preceding information are shared from T. Rowe Price Weekly Market Wrap-Up.