March 18, 2019
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Is economic growth slowing? Some indicators may be pointing in that direction. The Consumer Price Index increased only 0.2% in February after being unchanged the prior month. Excluding the volatile food and energy groups, consumer prices advanced just 0.1%. Over the last 12 months, the CPI has increased a relatively scant 1.5%.
Prices for goods at the retail level increased 0.2% in January following a 1.6% drop in December. For the 12 months ended in January, retail prices are up 2.3%.
The Producer Price Index edged up 0.1% in February after falling 0.1% in both January and December. For the 12 months ended in February, producer prices are up 1.9%.
Sales of newly constructed homes continue to lag. According to the latest report from the Census Bureau, sales of new single-family homes in January were 6.9% below December’s rate and 4.1% under the January 2018 estimate.
The manufacturing sector posted some positive data in January. New orders for durable goods increased 0.4% over December’s figures. This is the third consecutive increase in new orders, following a 1.3% jump in December.
Industrial production edged up 0.1% in February, according to the Federal Reserve.
For the week ended March 9, there were 229,000 new claims for unemployment insurance, an increase of 6,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended March 2. The advance number of those receiving unemployment insurance benefits during the week ended March 2 was 1,776,000, an increase of 18,000 from the prior week’s level.
DJIA: 25,848.87, up 1.57%
Nasdaq: 7,688.53, up 3.78%
S&P 500: 2,822.48, up 2.89%
Russell 2000: 1,553.54, up 2.08%
Global Dow: 3,022.78, up 2.79%
Fed. Funds: 2.25% -2.50%, unchanged
10-year Treasuries: 2.58%, down 5 bps
Stocks posted solid gains for the week. The technology sector, which forms the largest segment of the S&P 500 Index, performed best, helped by strength in Apple shares due to enthusiasm over the expected announcement of a new video streaming service. Shares in graphics chipmaker Nvidia were also especially strong. Industrials lagged, weighed down by a sharp decline in Boeing shares following a second fatal accident involving its new 737 Max 8 airliner. The strong performance of tech shares led to the outperformance of the tech-heavy Nasdaq Composite, which became the strongest major index for the year-to-date period. Having spiked the previous week, volatility, as measured by the Cboe Volatility Index (VIX), fell sharply and reached a five-month low.
Stocks were strong out of the gate for the trading week, helped by growing expectations that the U.S. and China would soon reach a trade agreement. Investors seemed particularly encouraged by remarks from the head of China’s central bank at a news conference on Sunday, in which he pledged that China would not devalue its currency to boost exports or to use it as a weapon in trade disputes.
Hopes that a deal was imminent faded a bit late in the week, however, after Bloomberg reported that the two countries’ leaders were unlikely to meet until at least early April. Growing concerns over the health of China’s economy may have also caused the market’s advance to stall at midweek, but news that Chinese officials were responding with new stimulus seemed to be behind a rally on Friday to close the week (see below).
China worries, the mixed U.S. economic signals, and a softer-than-expected inflation reading on Tuesday sent the yield on the benchmark 10-year Treasury note under 2.60% in early trading Friday, its lowest level since a brief plunge at the start of January. (Bond prices and yields move in opposite directions.) Municipal bonds outperformed Treasuries for much of the week, helped by a light new issuance calendar.
Conversely, the investment-grade corporate bond market saw steady new issuance, with the total volume surpassing estimates. For the most part, the new deals were easily absorbed by the market, although credit spreads — the additional yield offered by bonds with credit risk over Treasuries with similar maturities — widened slightly across most sectors. The crash of the Max 8 and its subsequent global grounding caused Boeing’s credits to come under pressure with significant spread widening.
The high yield market traded with a firm tone, although volumes were light in both the primary and secondary markets. The market was mostly focused on new deals as there were no major headlines driving sentiment. High yield funds reported inflows for the week and credit spreads narrowed.
The STOXX Europe 600 Index finished the week higher, boosted by improved U.S.-China trade prospects and the declining probability that the UK would leave the European Union (EU) by the March 29 deadline. The week was dominated by Brexit politics as UK lawmakers voted on a series of legislation ahead of the looming deadline.
The Nikkei 225 Stock Average rose 425 points (2%) for the week and closed on Friday at 21,450.85, up 7.2% in 2019. The large-cap TOPIX Index and the TOPIX Small Index also posted gains for the week. Year-to-date, the broader indexes are up over 7% and almost 6%, respectively. At the close on Friday, the yen stood at ¥111.50 per U.S. dollar, slightly down for the week and versus the ¥109.69 level at the end of 2018.
Mainland Chinese stocks rose for the week, buoyed by assurances to support the economy from a top official after several indicators underscored the country’s continued slowdown. For the week, the Shanghai Composite Index rose 1.74% and the large-cap CSI 300 Index, considered China’s blue chip index, added 2.39%. Most of the gains came on Friday, when Chinese Premier Li Keqiang said that Beijing was considering cutting some interest rates and banks’ reserve requirements to bolster economic growth. Li also stated that Beijing was keen to help the real economy, particularly small and private businesses, to bolster employment and prevent large layoffs.
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.