March 4, 2019
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ECONOMIC SUMMARY
According to the initial estimate, the gross domestic product increased at an annual rate of 2.6% in the fourth quarter of 2018. The third-quarter GDP increased 3.4%.
The personal income and outlays report is favored by the Federal Reserve as an inflation indicator. Due to the recent partial government shutdown, the current report combines estimates for income and outlays for December, but only income estimates for January. Consumer income rose 1.0% in December but fell 0.1% in January.
The latest report on new home construction from the Census Bureau is for December. Building permits were 0.3% higher over the last month of 2018 compared to November. However, single-family permits in December were 2.2% below the November figure. Home construction was also lagging in December. Housing starts for the month were 11.2% lower than November’s total.
Survey respondents to the IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) survey indicated that manufacturing slowed noticeably in February. The index was 53.0 for the month, down from 54.9 in January, slipping to the lowest rate since August 2017.
Following the Markit report, the Institute for Supply Management® (ISM®) also noted activity slowed in the manufacturing sector in February with its PMI® falling 2.4 percentage points from the January reading. New orders, production, employment, and prices all decreased in February.
For the week ended February 23, there were 225,000 new claims for unemployment insurance, an increase of 8,000 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 rose 0.1% to 1.3% for the week ended February 16. The advance number of those receiving unemployment insurance benefits during the week ended February 16 was 1,805,000, an increase of 79,000 from the prior week’s level, which was revised up by 1,000.
MARKET RETURNS
DJIA: 26,026.32, down 0.02%
Nasdaq: 7,595.35, up 0.90%
S&P 500: 2,803.69, up 0.39%
Russell 2000: 1,589.64, down 0.03%
Global Dow: 3,006.41, down 0.15%
Fed. Funds: 2.25% -2.50%, unchanged
10-year Treasuries: 2.75%, up 10 bps
MARKET SUMMARY
The major indexes were mixed for the week. The technology-heavy Nasdaq Composite Index performed best, while the smaller-cap benchmarks lagged. Traders noted that the S&P 500 Index seemed to be bumping up against a resistance level of around 2,800 due, in part, to the strength of recent gains. Early in the week, over 90% of the stocks in the index were trading above their 50-day moving average. Volatility, as measured by the Cboe Volatility Index (VIX), picked up a bit from its multi-month lows the previous week, and trading volumes were also somewhat elevated. Within the S&P 500 Index, utilities stocks outperformed, while materials shares lagged.
Signs of progress in U.S.-China trade negotiations seemed to lift sentiment for much of the week. Stocks jumped at the start of trading Monday following tweets from President Donald Trump over the weekend announcing that he would delay the implementation of higher tariffs on certain Chinese goods scheduled for March 1. Investors may have been particularly encouraged that Trump cited “substantial progress” on a range of issues, including intellectual property protection, technology transfer, currency manipulation, and promised increases in Chinese purchases of U.S. agricultural products and services.
On Wednesday, stocks fell back after the administration’s chief trade negotiator, Robert Lighthizer, told a congressional committee that “much still needs to be done” before an agreement could be reached. Bloomberg reported on Thursday afternoon, however, that U.S. officials were drafting a deal that President Trump and Chinese President Xi Jinping could sign as early as mid-March.
Longer-term Treasury yields moved higher for the week, with the yield on the benchmark 10-year note touching its highest level in a month. (Bond prices and yields move in opposite directions.) Municipal bonds continued to see light new issuance, and strong cash inflows into the asset class helped generate positive performance during the week. New issues had mixed success in obtaining funding, however, with many buyers continuing to wait patiently for higher rates. Valuation ratios (yields on munis relative to Treasuries) for short-term issues remained relatively rich, while longer-maturity ratios stayed more in line with historical norms.
Investment-grade corporate bond investors were mostly focused on the primary market as new issuance increased in line with expectations. Credit spreads — the additional yield offered over Treasuries with similar maturities and an inverse indicator of the sector’s relative appeal — tightened across most sectors. Month-end activity caused the market to become busier as the week progressed, and traders observed a good balance between buying and selling.
The high yield segment generally traded with a positive tone as high yield funds reported inflows, but energy was an outlier as oil price weakness weighed on performance. In credit-specific news, telecommunication services company Windstream filed for Chapter 11 bankruptcy protection. The default affects nearly $5 billion in bonds and institutional loans and is the sixth-largest high yield bankruptcy since 2014.
The pan-European STOXX Europe 600 Index rose despite escalating geopolitical tensions between nuclear powers Pakistan and India and the abrupt end to the U.S.-North Korea summit. Renewed hopes for a U.S.-China trade agreement and better Chinese manufacturing data buoyed stocks.
The Nikkei 225 Stock Average advanced 0.8% for the week and closed on Friday at 21,602.69, ahead 7.9% in 2019. The large-cap TOPIX Index and the TOPIX Small Index also generated similar-sized gains and ended ahead more than 8.0% for the year to date. At the close on Friday, the yen stood at ¥111.71 per U.S. dollar, weaker for the week and versus the ¥109.69 level at the end of 2018.
Mainland Chinese stocks entered bull market territory — with the major indexes up over 20% from their recent lows — after MSCI announced that it would quadruple the weighting of China shares in its widely used global benchmarks this year. For the week, the Shanghai Composite Index surged 6.77%, marking the benchmark’s biggest weekly gain since June 2015. The large-cap CSI 300 Index, considered China’s blue chip benchmark, added 6.52%. Buying from foreign investors ahead of MSCI’s decision helped drive both indexes higher on Friday, which capped a stellar month for Chinese stocks. U.S. dollar- and yuan-denominated Chinese A shares rose 14.89% and 25.34%, respectively, through the end of February, making them among the best year-to-date performers in emerging markets, according to MSCI data.
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.