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Weekly Market Commentary

September 17th – September 21st

Housing reports were mixed as Starts jumped to an annualized rate of 9.2% in August while the more forward looking Building Permits component showed a decline of -5.7%.  The strength in Housing Starts was led by multi-family units rising in demand as first time home buyers are being squeezed out of the market on price.  Existing Home Sales for August came in lower than expected for a fifth month in a row.  Looking through at the component levels of the data lead us to expect the slowdown in housing to continue. 

Tariffs scheduled to go into effect on Sep. 24th put the U.S. and China squarely on the path to a full-blown trade war.  Following the announcement from the U.S. that the threatened $200 billion in new tariffs on imported Chinese goods will go into effect on Monday, China announced retaliatory tariffs on $60 billion on U.S. imported goods.  The Chinese-imposed tariffs will impact over 5,000 different U.S. goods including machinery, chemicals and farm goods.  President Trump vowed to pose incremental tariffs based on China retaliation totaling an additional $267 billion.  All told, the U.S. tariffs would exceed the $505 billion in Chinese goods imported by the U.S. last year. 

The yield on the 10-Year U.S. Treasury broke back through the 3% level closing the week at 3.06%.  The yield curve steepened modestly during the week with the spread between the 2-Year and 10-Year U.S. Treasury now at 0.27%, up from a low of 0.18% reached last month.  The 2-Year climbed to multi-year highs closing at 2.79%, double the rate it was at the time of the U.S. Presidential election.

U.S. equities seesawed early in the week on macro headlines led by heightened volatility in technology stocks.  Investors brushed off trade concerns sending the Dow Jones Industrial Average and S&P 500 both into new record territory.  The Dow gained 2.25% on the week closing at 26,743 and S&P 500 was up 0.85% to 2,929.

The FOMC meets for their much-anticipated September meeting next week.  Markets have fully priced in a 0.25% increase of the Fed Fund Rates.  Notable economic releases next week include revised Q2 GDP, Durable Goods Orders and International Trade in Goods. 


Weekly Market Commentary

September 10th – September 14th

Inflation in the U.S. cooled in August coming in below consensus expectations.  The Core Consumer Price Index (CPI) figures pulled back to 2.2% on a year-on-year basis after creeping higher in prior months.  The headline report was lower at 2.7%.  Modest contraction in medical cost and apparel prices along with only a slight rise in food cost kept prices in check. Both housing and energy prices expanded during the period. 

Retail sales edged up a modest 0.1% in August while the already strong July reading was revised higher to 0.7%.  A slowdown in motor vehicle sales weighed on the August report.  Non-store retailers (e-commerce), gas stations and restaurants sales remained strong.

The JOLTS jobs report showed that job openings meaningfully outpaced hirings.  Openings have increased 11.9% on a year-on-year basis through July while hirings have grown only 3.3%, clear evidence of a skills mismatch.  There are now 11 jobs available for every 10 unemployed individuals in the U.S.  The quit rate hit new highs, a sign that employees are confident in their ability to find a new position.

Oil prices rose during the week with Hurricane Florence making landfall across the southeast and devasting parts of the Carolinas while another tropical storm is projected to hit the Gulf Coast region.  The price of crude oil broke through $70 per barrel before closing the week at $69.

The yield on the 10-Year U.S. Treasury rose 5 basis points during the week to close at 2.99%.  The 2-Year U.S. Treasury rose 9 to 2.79%.  The yield curve continues to flatten in anticipation of an additional Fed Funds Rate hike this month. 

The S&P 500 closed the week up 1.2% to 2,905.  Technology stocks recovered ground lost in the previous week sending the NASDAQ 1.4% higher to 8,010.  Semi-conductor companies felt a reprieve after being one of the harder hit areas of the sector.      

Economic releases will be light next week.  Investors will be paying attention to Existing Home Sales and Housing Starts along with some regional manufacturing indices while waiting for some added clarity on global trade tariffs.   


Weekly Market Commentary

September 4th – September 9th

Employment remains strong in the U.S.  August non-farm payrolls came in higher than expected at 201k versus 190k consensus.  The prior two months revision removed 50k resulting in a three-month average of 185k.  Headline unemployment remained unchanged at 3.9%, the lowest since the 1960s.  Underemployment, as measured by the U6, was slightly lower at 7.4%.  The most interesting factor of the report was the 2.9% year-on-year wage growth, up from 2.7%.  Beyond the fact that wages are continuing to show improvement as we have been expecting, U.S. equities digested the news without a major selloff, unlike early in 2018 when wage growth momentarily reached a similar level.

ISM manufacturing came in well ahead of consensus expectations at 61.3, a level not seen since 2004.  New orders, output and employment all expanded in August mostly driven by domestic orders.  Most economists had predicted a slowdown for the month due to protectionist global trade measures and a softening in some of the regional manufacturing data. 

The yield on the 10-Year U.S. Treasury traded within a range of 2.86% to 2.94%.  Risk off sentiment initially weighed on yields as investors seeking the safety of U.S. Treasuries drove prices higher and yields down.  The strong employment report drove rates to the highest point of the week on Friday with the bellwether closing at 2.94%.

A sharp pullback in technology stocks weighed on U.S. equity markets throughout the holiday shortened trading week.  The S&P 500 finished the week down 1.0% at 2,871.  The NASDAQ traded off -2.5% closing back below the 8,000 milestone at 7,902.  More tough talk on global trade weighed on multinational firms in the final trading session.  President Trump announced an incremental $267 billion in Chinese goods identified for tariffs, in addition to the $200 billion slated to go into effect at midnight tonight.

Notable economic releases next week include CPI and PPI inflation measures, Retail Sales, Import/Export Prices and Industrial Production.


Weekly Market Commentary

August 27th – August 31st

The second estimate of Q2 GDP bucked consensus and was revised upward from 4.1% to 4.2%.  The very strong report was backed by upward revisions to business fixed investment.  Falling exports with rising imports in July will be a headwind to the start of Q3 GDP, but builds in wholesale and retail inventories from low levels will make up some of the shortfall. 

Consumer Confidence shot to the highest level in 18 years led by a very favorable assessment of the job situation.  A decline in Pending Home Sales added to the raft of recent weak housing data. 

The Core PCE in July was reported right on the Fed’s target of 2% on a year-on-year basis.  Personal Income and Outlays eased slightly adding to a “just right” inflation picture of moderate income and spending growth the Fed will want to maintain.  The yield on the 10-Year U.S. Treasury Bond finished the week within a couple of basis points from where it started at 2.86% after trading up to 2.89% midweek.

Global trade concerns lessened with the U.S. and Mexico reaching an agreement in principal on NAFTA revisions (still requiring Congressional approval) cleverly referred to as HALFTA as the talks did not include Canada.  Pundits talking up the start of another $200 billion in tariffs on Chinese goods beginning on September 6th made the reprieve short-lived. 

The NASDAQ surpassed 8,000 for the first time driven by further gains in large cap technology stocks.  The S&P 500 also broke further into record territory through the 2,900 level before pulling back and closing the week with only a modest gain of 0.2% at 2,901. 

Notable economic releases next week in the holiday shortened trading week include Nonfarm Payrolls, Factory Orders and ISM and PMI Manufacturing Indices.  Several FOMC governors will hold speaking engagements around the country sure to attract ample attention from members of the financial press looking to key in on any new word uttered. 


Weekly Market Commentary

August 20th – August 24th

Durable goods orders declined in July, down -1.7% at the headline level with June figures revised downward as well from 1.0% to 0.7%.  Orders for Core Capital Goods (nondefense ex-aircraft) however, showed signs of strength increasing by 1.4%.  Computers and electronics were strong contributors supporting improved business investment.  Weakness came from the typically volatile commercial and defense aircraft area due to “lumpy” order flow. 

Existing Home Sales declined for a fourth consecutive month, down -0.7% during the month of July to a 2.5 year low.  Higher prices, limited inventory and rising mortgage rates have slowed the market leaving housing as a lone outlier of economic weakness.  New Home Sales declined in July as well, down -1.7%.  Supply of new homes for sale however, increased modestly to 5.9 months from 5.7 months.

The end of the Greek bailout occurred this week without much fanfare.  After eight years and 290bn Euros ($330bn), the country must stand on its own amid persistent unemployment and low wages.  Despite continued austerity necessary to close a ballooning budget deficit, the economy is showing signs of growth.  With eye popping headlines like 1,000,000% (unbelievable but not a type-o) hyper-inflation projected in Venezuela by the IMF and an overnight lending rate nearing 20% in Turkey, its understandable that Greece (once the poster child geopolitical concern threatening to dismantle the EU) would be low on the radar.

The yield on the 10-Year U.S. Treasury Bond declined 5 basis points on the week to 2.81%. The FOMC Meeting Minutes signaled another rate increase on the way in the near-term.  The probability of a Fed Funds Rate hike in September is over 92%.  With the spread between the 2-Year and 10-Year Treasury at a mere 19 basis points, a move toward an inverted yield curve will certainly be on traders’ minds.

The current bull market in U.S. equities now stands as the longest in recorded history.  On Wednesday, the S&P 500 broke through the record 3,453 days after hitting a post financial crisis low of 666 on March 9, 2009, surpassing the previous record which ended in the tech bust in March 2000.  The broad stock index has grown in price terms by more than four times since 2009; the NASDAQ index by a whopping six times.  The S&P 500 also broke into new record high territory, closing the week at 2,874.

Notable economic releases next week include the second estimate of Q2 GDP, Personal Income and Outlays and a number of regional manufacturing indices.


Weekly Market Commentary

August 13th – August 17th

Retail Sales rose 0.5% in July, more than the 0.1% forecasted, extending personal consumption growth into the third quarter.  June figures were revised down to 0.2%.  Nine of the 13 major categories showed increases, led by clothing stores and food and beverage businesses.  Consumer sentiment remains elevated and a gauge of small business optimism rose in July to the second highest level on record.  The number of small businesses sighting “job openings hard to fill” as a major concern reached a new high as tight labor markets persist. 

Import and Export Prices were soft in July particularly for finished goods.  Producers continue to lack pricing power, absorbing costs and keeping price inflation in check.  Productivity jumped to 2.9% on an annualized basis in July, ahead of the 2.4% estimate.  With 4.1% GDP growth, something in the equation of labor costs and productivity needed to give, which we are now seeing signs of.  Industrial Production came in at the lower end of the expected range at 0.1% in July, while the June reading of 0.6% was revised upward to 1.0%. 

Housing Starts continued to disappoint coming in at 1,168 relative to consensus estimates of 1,264.  Building Permits were in line with expectations at 1,311.  This is an unusual divergence between the two measures.  Given the weakness in Starts in the West Census Region, analysts are citing California wild fires as a likely factor for the gap. 

The yield on the 10-Year U.S. Treasury Bond finished the week very close to where it started at 2.86% after trading within a modest range of 2.84-2.89%.

The S&P 500 navigated the waves of volatility as the tides changed from risk on to off throughout the week.  The benchmark closed up 0.6% at 2,850.  With Q2 corporate earnings season wrapped up investors focused in more on the geopolitical risks unfolding, including the currency devaluation, debt and banking system concerns in Turkey.  The slide in the Turkish Lira has led to rising demand for the U.S. dollar.  While dollar strength in the long-run is good for our economy, in the short-run it will have a negative impact on U.S. companies reliant on overseas exports. 

Notable economic releases next week include Existing and New Home Sales, Durable Goods Orders and FOMC meeting minutes. 


Weekly Market Commentary

August 6th – August 10th

Core Producer Price Inflation (PPI) increased modestly in July to 2.7% on a year-on-year basis from 2.8% in June.  The headline figure was a tenth lower than June as well at 3.3%.  Underlying price pressures remained primarily from building materials, transportation and logistics. 

The Consumer Price Index (CPI) advanced 2.9%, with the core reading up 2.4% from last year.  The core number was modestly ahead of analyst estimates, while a drop in energy prices kept the headline report in check.  

The yield on the 10-Year U.S. Treasury declined this week, pulling back Friday as the currency crisis unfolded in Turkey.  The bellwether finished the week down 8 basis points to 2.87%. The yield curve remained flat, at 27 basis points.

The S&P 500 fell 7 points on the week due to the Friday sell-off, which also triggered a 250-point drop in the Dow.  The S&P finished the week at 2,833.

Crude oil slipped midweek on increased U.S. production and the tariff-related possibility of weaker demand from China.  Oil bounced back Friday, but finished the week down around 1% to $67.67 a barrel.

Meanwhile, the odds of four rate hikes in 2018 continued to creep up.  According to a Wall Street Journal survey, 88% of economists believe the Fed will hike rates two more times in 2018.  The CME Group has the probability of this happening at 68%.

Notable economic releases next week include Retail Sales, Housing Starts, Industrial Production, and Export and Import prices, which will be closely watched due to the escalating trade war.


Weekly Market Commentary

July 30th – August 3rd

Nonfarm payrolls in July came in at the low end of estimates at 157k, however the strong jobs growth reported in June was revised upward by 35k from 213k to 238k along with an additional positive revision for May by 24k.  The three-month average of 224k jobs paints a very healthy picture for employment.  The headline unemployment rate ticked down to 3.9% from 4.0%.  Wage growth was unchanged at 2.7% meeting expectations.

Personal Consumption Expenditures (PCE) rose in line with consensus for June while coming in a tenth less than expected on a year-on year basis, 2.2% at the headline reading and 1.9% core.  There was nothing in the report to spook Fed watching inflation hawks.

The savings rate in the U.S. was 6.8% in June, a positive sign in conjunction with the strong Q2 GDP first estimate of consumption.  That figure is more than twice what was estimated before the strong GDP details released on Friday.  It is a bit of a head scratcher that savings and consumption improved in tandem with benign wage growth.  None-the-less, the reports deflate the argument made by Fed hawks justifying further tightening on fear of excessive debt leading to imbalances. 

Unfilled Factory Orders reached the highest level in a decade despite a spike in new hirings by manufacturers.  With tightening in the blue color labor market continuing, wage pressure can’t be far off without a major shift in productivity from innovation.  ISM Manufacturing pulled back modestly in July, reported at 58.1 versus a consensus estimate of 59.4, but remains well into expansionary territory.  New orders eased more than expected likely tied to trade policy uncertainty. 

As expected, the FOMC left rates unchanged this week.  The Committee’s statement referenced a strengthening labor market, strong rate of economic activity, growing household spending and business investment.  Translation… more of the same with a gradual rate hike in September. 

The yield on the 10-Year U.S. Treasury bond passed through the 3% level once again at midweek before closing the final trading session at 2.95%.  The continued high volume of new UST debt issuance certainly factored into the move.  The Treasury will issue $78 billion this quarter with a third of it 10-Year maturities.  The U.S. budget deficit is expected to reach $1 Trillion next year.

The S&P 500 rolled through a back and forth week full of earnings reports, finishing with a modest gain of 0.7% at 2,840.

Next week will be light on economic releases beyond updated PPI and CPI inflation figures.


Weekly Market Commentary

July 23rd – July 27th

The first estimate for Q2 GDP did not disappoint lofty expectations coming in at 4.1%.  Final Sales were a key driver growing by 5.1%.  Personal Consumption came back strongly as well at a 4% annual rate, the biggest increase since 2014.  Business Fixed Investment was up 7.3% led by structure investment up a whopping 13.3%, intellectual property well ahead of trend at 8.2% and equipment purchases growing by 3.9%.  Housing investment fell 1.1% after a 3.4% drop in the prior quarter.  This is a rock-solid report with strength in the most important key segments.

Durable Goods orders rose less than expected, up 1% in June, but a positive number none-the-less after pullbacks in the first two months of the second calendar quarter.  Civilian aircraft orders rose meaningfully after weighing on results for the past two months.  Orders Ex-transportation increased at a more modest pace for June up 0.4%, while May results were revised from -0.3 to an increase of 0.3.  Capital Goods Orders Ex-Aircraft picked up as well, foreshadowing the recovering in Business Fixed Investment.

Existing Home Sales pulled back for a third straight month.  Inventory shortage, particularly at the lower end of the market, continued to push up prices of homes for sale.  New Home Sales disappointed as well, reaching an eight-month low.  In conjunction with lower than expected Housing Starts and Building Permits last week, housing data has slowed across the board.

Global trade concerns eased modestly when President Trump and EU President Jean-Claude Juncker reached a preliminary agreement to mutually eliminate tariffs on cars.  The U.S. will eliminate steel and aluminum tariffs with the EU agreeing to higher imports of certain commodities, assuming buy in is able to be negotiated across EU member states. 

The yield on the 10-Year U.S. Treasury rose during the week nearing the 3% level once again.  The bellwether Treasury ended the week at 2.96%.  Despite the added level of breathing room at the intermediate part of the yield curve, the spread between the 2-Year and 10-Year Treasuries remains historically tight at 30 basis points.

The S&P 500 finished marginally ahead of where it started the week finishing up 0.57% at 2,818.  Most of the gains earned through midweek were returned in the final two sessions led lower primarily by technology stocks.  The NASDAQ hit a new record high mid-week before a massive decline in shares of Facebook weighed on other stocks in the tech sector. 

The Fed meets next week with no rate decision expected until the September meeting.  Notable economic releases next week include Employment, Factory Orders and ISM Manufacturing Indices.


Weekly Market Commentary

July 16th – July 20th

Retail Sales for June were reported in line with expectations up 0.5%.  May results were revised upward from 0.8% to 1.3%.  The control group (retail categories that translate directly to GDP) missed as it was flat for June versus expectations of 0.4% although the shortfall was nearly made up for with an upward revision for the prior month from 0.5% to 0.8%.  Q2 GDP remains on track to meaningfully outpace the first quarter. 

U.S. housing starts missed consensus estimates and hit a 9-month low.  Building permits were reported well below expectations as well declining for a third straight month.  The below consensus reports exacerbate a slowdown in the housing market with low inventories of properties for sale having weighed on existing home sales. 

The yield on the 10-Year U.S. Treasury closed the week at 2.89% within a few basis points of where it started.  The spread between the 2-Year and 10-Year Treasuries remains tight at 0.29%.  The short end of the curve continues to rise with the 3mo UST Bill yield reaching 2% this week. 

The S&P 500 finished the week up by 0.4%.  Corporate earnings season is in full swing giving investors plenty of company specific news to digest in addition to the daily global headlines relating to trade and geopolitical stress. 

Notable economic releases next week include a first look at an initial estimate for Q2 GDP, Durable Goods, as well as Existing and New Home Sales.


Weekly Market Commentary

July 9th – July 13th

Producer Prices at wholesalers and retailers are showing signs of pressure in light of increased tariffs.  Year-on-year PPI for June was higher than anticipated at 3.4%.  Core PPI, excluding food and energy, was also higher than consensus at 2.8%.  Consumer prices edged up more modestly showing a continued lack of pricing power for producers.  Year-on-year CPI was in line with consensus at 2.9% and the Core reading was a tick above expectations at 2.3%.  The only signs of price pressure came from medical care and rents.  The readings continue to inch higher, providing the Fed a modicum of cover for tighter rate policy.  Import prices however, pulled back in June after initial spikes in steel and aluminum prices following the initial tariff imposition in March.

The JOLTS job openings report slipped modestly in May while the already strong April figures were revised upward.  Openings continue to outpace hirings and remain larger than the number of active job seekers.  The abundance of openings in April is starting to pull discouraged workers back into the job market to even the balance between job seekers and opportunities, but the skills mismatch remains. 

Consumer credit through May jumped to the highest level in 2018.  Total credit increased by $24.6B, well ahead of estimates, and the prior month was revised upward by $1.0B.  The slowdown in credit card usage after the holiday shopping season appears to be over, despite the fact that credit card rates are at multi-year highs. 

The yield on the 10-Year U.S. Treasury traded within a narrow range of 2.81-2.87%, closing the week at 2.83%.  The spread between the 2-Year and 10-Year Treasuries tightened further to an extremely narrow 24 basis points.  The term premium for bond investors to extend maturity has all but evaporated. 

U.S. stocks rose straight through the initial trading session of the week following continued strength on the employment front reported last week.  Investors’ concerns about trade tensions eased for most of the week as focus shifted to expectations of a strong Q2 earnings season.  The S&P 500 closed the week with a gain of 1.5% at 2,801.  The technology heavy NASDAQ broke further into record territory closing at 7,825 and the Dow edged back above the 25,000 mark. 

Notable economic releases next week include Retail Sales, Industrial Production, Housing Starts and regional manufacturing surveys.


Weekly Market Commentary

June 25th-June 29th

The final estimate of Q1 GDP came in at a disappointing 2.0% from 2.2%, revised lower due to downward revisions of spending on services, net exports and inventories.  Despite being higher than the Q1 print of the prior two years, the figure is below what we had expected.  Fortunately, second quarter economic growth is shaping up to be far stronger than the first which we expect to surpass 3%.  Personal Consumption Expenditures (PCE) came in modestly higher than expected at 2.3% on a year-on-year basis.  The Core reading reached the Fed’s target of 2.0% for the first time in six years. 

Manufacturing Indices reported predominantly weaker than anticipated results perhaps predicated on the expectation of future strains from tough trade talk out of Washington.  Bloomberg National Economic Expectations remain near multi-year highs, but the Conference Board U.S. Leading Index has softened.  Markit Manufacturing PMI was softer than expected and the Chicago Fed National Activity Index disappointed, falling into negative territory.  Philly Fed reported lower than expected results as well.  The Dallas Fed Manufacturing Index was an outlier, exceeding expectations. 

Durable Goods orders showed promise despite softness at the headline level of -0.6% as anticipated, primarily due to tariff-related declines from metals.  Another build up in unfilled orders increases expectations for the next print. 

New Home Sales surprised to the upside for May coming in at 689k versus an estimated 667k.  The sale of lower priced starter homes jumped while high-end home sales dropped.  The combination led to a rare decline in median home prices.

Oil prices reached their highest level in over three years at over $74 per barrel based on concerns of supply reduction.  U.S. crude inventories were reported lower than expected at a time when U.S. sanctions on Iran are becoming increasingly concerning within the industry. 

The yield on the 10-Year U.S. Treasury shifted with the changes in risk on/off sentiment throughout the week, closing at 2.85%, only modestly below where it started.  The spread between the 2-Year and 10-Year Treasuries reached new cycle lows ending the week at an historically tight level of 32 basis points.

U.S. stocks pulled back sharply in the first trading session of the week on concerns of global trade tariff retaliation measures.  Profit taking in technology shares led the sector to sharp losses with more defensive sectors like Consumer Staples and Utilities receiving investor attention.  Investor sentiment vacillated throughout the week of up and down days culminating in a strong rally through the final trading day.  For the week, the S&P 500 regained some of the lost ground closing down -1.3% at 2,718.  The Chinese stock market has taken a meaningful hit for similar trade-related reasons, now in bear market territory. 

Notable upcoming economic releases include Nonfarm payrolls, ISM and PMI manufacturing data, Factory Orders and CPI, PPI inflation readings. 

Enjoy the July 4th holiday.  The next Market Commentary will be released on July 13th


Weekly Market Commentary

June 18th-June 22nd

Talk of trade tariffs dominated financial media headlines and investor sentiment throughout the week.  Volatility as measured by the VIX Index followed suit rising by 16% during the week.  The largest banks in the U.S. passed the government’s latest stress test appeasing some of the growing uneasiness.    

Housing Starts for May jumped to 1.35mm, ahead of the survey estimate, as residential projects delayed in April due to adverse weather pushed into the following month.  Multi-family housing under construction continues to be robust with ample new supply coming to market.  Residential building permits are starting to fall off however, perhaps somewhat impacted by a tightening labor market for skilled construction workers.  Existing Home Sales pulled back modestly again to 5.4mm as inventory of homes for sale remains tight while home prices continue to rise.  A low level of jobless claims is setting the stage for another strong employment report this month. 

The yield on the 10-Year U.S. Treasury eased back down to a low of 2.85% early in the week with investors’ flight to the safety of UST bonds.  The bellwether Treasury found its way back to a high of 2.94% before settling back at 2.89% to close the week.  Traders’ expectations between 3-4 Fed hikes in 2018 vacillated with the implied probability of a fourth hike now modestly below 50%.

U.S. equities sold off on trade uneasiness in a back and forth week in which the  S&P 500 finished nearly where it started, down -0.8% at 2,754.  The technology-heavy NASDAQ Index was able to reach a new record high midweek before profit takers pared back the gains in subsequent sessions.  The Dow was down for the week by -2% closing at 24,581.

Notable economic releases next week include the final estimate of Q1 GDP, Durable Goods Orders, New Home Sales and regional manufacturing indices.


Weekly Market Commentary

June 11th-June 15th

The G7 summit held over the weekend ended without a joint communication after President Trump disavowed the written statement.  Verbal jabs between the U.S. President and Canadian PM Trudeau ensued following the joint meeting causing concern for the direction of NAFTA renegotiations.  The U.S. - North Korea summit held in Singapore provided some positive photo op images and generally positive comments relating to further discussion of peace, diplomacy and disarmament.  Sanctions remain in place however, U.S. military exercises in South Korea are planned to halt, a step in the right direction toward negotiation and a large cost savings. 

CPI inflation data matched expectations with the headline reading of 2.8% on a year-on-year basis, the highest level since February 2012.  The Core reading, excluding food and energy prices was reported in line with estimates as well at 2.2%.  Producer Price Inflation (PPI) jumped 0.5% in May (3.1% y/y), more than expected given the 4.6% rise in total energy costs, including a 9.8% spike in gasoline costs.  Excluding food and energy, the Core PPI rose 0.3% (2.4% y/y).

Retail Sales for May exceeded projections rising 0.8%.   The slump in consumption from Dec. through Feb. (following the post-hurricane spike in Sep.-Nov.) has subsided with the third consecutive month of above trend sales growth.

The FOMC announced a 0.25% increase in the Fed Funds Rate as was widely expected to a target level of 1.75-2.00%.  Post meeting statement language was modestly more hawkish and a shift in the Committee members’ rate projections, known as the “dot plot”, now shows higher potential for four increases (rather than three) in 2018.  The probability of four hikes priced in by the futures markets spiked to over 50%.  The ECB met the following day declaring a tighter policy stance by stating that quantitative easing (QE) would end in Dec. 2018, with rate hikes not expected until Sep. 2019.  The ECB continues to follow the U.S. post-recession play book on monetary policy by pausing between the announcement of an end to QE and implementing rate hikes.

The yield on the 2-Year U.S. Treasury jumped through the 2.60% level following the Fed announcement and closed the week at 2.57%.  The 10-Year U.S. Treasury Yield momentarily ticked back through 3.0%, but closed back down at 2.92%.  The 2-10 Treasury spread touched a new cycle low signifying further flattening of the yield curve. 

Continued strength in the equity market led the S&P 500 to the highest close since February 1st at midweek. Subsequent profit taking led the index lower, closing within a point of where it started the week at 2,779.  The Russell 2000 Index of small cap stocks broke through a new all-time closing high record as well.   

Notable economic releases next week include Housing Starts and Existing Home Sales.  Financial journalists will be busy following FOMC Committee members around at their post meeting speaking engagements parsing individual opinions and comparing word selection.  We’ll read this less than enthralling detail so you don’t have to.     


Weekly Market Commentary

June 4th-June 8th

This was a light week for economic news. Factory Orders came in down 0.8 percent, below estimates due to weakness in aircraft orders. The less volatile ex-transportation number showed a 0.4% gain and slightly beat estimates. Durable Goods Orders ex-transportation were up a healthy 0.9%, outpacing estimates of 0.5% and supporting the outlook for a more robust period of consumption.

JOLTS Job Openings for April came in at 6.7 million, surpassing the number of unemployed workers (6.3 million) for the first time in this economic cycle. In addition, weekly jobless claims remained historically low at 222K. Both readings point to a tightening labor market on the heels of the 3.8 % unemployment reading. The favorable readings helped lift the probability of four Fed hikes this year back up to 37%.

One data point boosting equities was a monthly trade deficit that came in below expectations at -46.2 Billion. This report showed increased exports of key U.S. goods like soybeans, as well as a tightening of import purchases, and can be expected to be brought up in ongoing trade negotiations with China. The Fed also noted higher freight volumes and increased exports in their recent Beige Book report.

For the week, the S&P 500 was up a solid 1.62% to 2,779, while the U.S. 10-year T-Bill climbed 4 bps to 2.94 and the 2-10 spread remained fairly flat at 45 basis points.

Markets next week will be trading on news that comes out of this weekend’s G7 summit (where tariffs and trade policy will take center stage) and the June 12 U.S. summit with North Korea. We’ll also hear from the FOMC Wednesday, where the Fed Funds rate is almost certain to increase.


Weekly Market Commentary

May 29th – June 1st

Nonfarm payrolls exceeded expectations for May at 223k, above the 190k consensus, along with a net revision for the prior two months of +15k.  Headline unemployment reached a new multi-decade low of 3.8% and annualized wage growth hit the “Goldilocks” level of 2.7%.

The second estimate of Q1 GDP was revised modestly lower from 2.3% to 2.2% driven by softer than initially reported consumer spending. 

Personal Income rose in line with expectations in April increasing 0.3%.  Consumer spending exceeded the 0.4% expected increase coming in at 0.6% and the prior month 0.4% reading from March was revised up to 0.5%.  The trickle of U.S. consumption has the potential to turn into a more steady stream of spending this quarter.  The Personal Consumption Expenditures (PCE) inflation measure was in line with expectations at 2.0% year-on-year change and 1.8% for the Core reading. 

The 10-Year U.S. Treasury yield pulled back meaningfully early in the week driven by a flight to safety.  The yield curve flattened further with the 2-10 Treasury spread reaching 43 basis points, the lowest in over a decade.  Yields recovered somewhat as the week went on with the bellwether Treasury closing marginally lower for the week at 2.89%.  The probability of four rate hikes in calendar year 2018 priced in from the futures market fell from 45% to 10% this week.

Equity markets had a roller coaster holiday-shortened trading week.  Risk off sentiment prevailed in the initial session driven by political turmoil in Italy raising concerns about another European Union possible exit scenario.  After a one-day recovery, renewed concerns about trade tariffs and potential global retaliation sent stock indices back into the red followed by a strong final session after the strong employment report and easing concerns about EU turmoil.  For the week, the S&P 500 closed modestly higher, up 0.5% at 2,734.

Economic releases will be light next week, including Factory Orders and Consumer Credit.


Weekly Market Commentary

May 21st – May 25th

Durable Goods orders in April fell -1.7%, below the estimate of -1.2%.  Much of the decline was related to aircraft orders, down 29% in April after spiking over 60% in March.  Capital Goods orders excluding defense and aircraft rose 1.0%.  The rise in April is encouraging given the weakness in this reading during the first quarter.

New Home Sales for April of 662k were below consensus estimates of 677k, more of a slowdown than was expected after the particularly robust 694k in March.  Existing Home Sales were also weaker than expected for April at 5.45mm vs. an estimated 5.60mm.  Inventory of homes for sale is at the lowest level in years for this time of year.

Congress passed a bank regulatory relief bill with bipartisan support.  One of the key components redefined the “too big to fail” limit financial institutions were tagged with by Dodd-Frank from $50bn to $250bn, removing some of the onerous reporting requirements on smaller regional banks, giving them more of an opportunity to compete with the larger national banks. 

The FOMC minutes were released pointing to an expected rate hike in the June meeting, but struck a somewhat more dovish tone with respect to the inflation target of 2%.  Opinions were split as to whether inflation would hold at the target level or decline once reached.  Interestingly, no members expressed fear of inflation remaining above the 2% target for a sustained period of time.  A discussion on statement language going forward showed some members leaning away from using the word “accommodative” to describe policy, shifting to a more neutral stance.  “Concerns about the outlook for trade policy in the U.S. and abroad” was another notable comment attracting attention. 

The 10-Year U.S. Treasury yields vacillated along with risk, moving back below the 3% level as investors sought the safety of Treasuries as risk shifted off following the announced cancellation of the U.S. – North Korea summit.  For the week, the bellwether Treasury Bond yield decreased by 12 basis points to 2.93%.

The S&P 500 rallied in the first trading session of the week on news of easing trade tensions between the U.S. and China, with China promising to import more U.S. goods.  Heightened geopolitical concerns relating to North Korea reduced investors’ risk appetite later in the week.  For the week, the S&P 500 closed within a stone’s throw of where it started at 2,721.

Notable economic releases in the upcoming holiday-shortened trading week include a second estimate of Q1 GDP, Personal Income and Outlays, PMI and ISM Manufacturing and Employment data.


Weekly Market Commentary

May 14th – May 18th

Retail Sales met modest expectations for April, increasing 0.3%.  The headline result matched the ex-autos and ex-gas figures at 0.3%, marginally trailing consensus estimates.  The March figure was revised upward to a more favorable reading of 0.8%.  Gasoline Stations were a standout in the report, up for nine consecutive months with 11.7% year-on-year sales growth.

The latest report of business inventories was flat at 0.0%, below the 0.2% estimate and 0.6% prior reading.  The pullback is likely to impact the second estimate of Q1 GDP given the positive lift from inventories in the initial GDP report.  The April Industrial Production report came in at 0.7%.  The figure includes a solid 0.5% gain for manufacturing.  Regional manufacturing indices from Philly Fed and Empire State exceeded expectations as well. 

The Continuing Jobless Claims report showed the lowest number of Americans receiving unemployment benefits since 1973.  Layoffs are becoming increasingly rare as the labor market continues to tighten.  The average time to fill a job vacancy surpassed 30 days for the first time in two decades. 

A significant increase was reported in the number of active wells in shale oil fields outside of the Permian basin in the U.S.  Exploration and Production companies have quickly increased fracking in response to rising oil prices.  Rig Counts remained steady, but downward pressure on oil prices is in the cards.

Rising Treasury yields continue to push up mortgage rates.  The average 30-year fixed mortgage rate in the U.S. hit a seven-year high of 4.6%.  The combination of benign wage growth, rising home prices and higher financing costs will start to squeeze first time homebuyers out of the market.  Mixed results were reporting in housing data with Housing Starts missing consensus estimates and Building Permits meeting expectations. 

The 2-Year Treasury yield continued to reach multi-year highs at 2.54%.  The 10-Year U.S. Treasury yield reached 3.12% in intra-day trading, the highest level since 2011, before closing at 3.05% in the final trading session.  The spread on the long end of the yield curve between the 10-Year and 30-Year Treasury stands at a historically low 0.14%.  

The S&P 500 recovered some of the early week losses incurred in the first two trading sessions, but closed the week lower by 0.5% at 2,712.  Small cap stocks, with revenues derived primarily domestically, outpaced large cap stocks as rising rates have led to dollar strengthening.

Notable economic releases next week include New and Existing Home Sales and Durable Goods Orders along with the release of FOMC meeting minutes. 


Weekly Market Commentary

May 7th – May 11th

Producer Prices rose a modest 0.1% in April, below the consensus estimate of 0.2%.  On a year-on-year basis PPI inflation slowed from 3.0% to 2.6% led by a decline in food prices.  The Core reading, ex-food and energy, slowed from 2.7% to 2.3%.  The only inflationary detail coming through in the benign report was in transportation and warehousing where a shortage in truck drivers has resulted in wage increases passing through.  The Consumer Price Index rose only modestly as well at 0.2% for April, below the 0.3% consensus with the Core measure reported at 0.1%, the lowest since November.  On a year-on-year basis, CPI was 2.5% and the Core 2.1%, in line with the prior monthly reading.  Inflation hawks found little to screech about in either report. 

Consumer credit was softer than expected in March.  Increasing interest rates on outstanding balances is incentivizing consumers to begin to pay down card balances.  This is good news for the health of personal balance sheets, but a headwind to personal consumption if continued. 

The JOLTS (jobs) report showed roughly the same amount of unemployed workers (6.3mm) as available jobs (6.5mm) for the first time, underscoring the tightening of the labor market. 

Oil prices rose following President Trump’s announcement that the U.S. is backing out of the Iran nuclear accord along with declining inventory reports.  Crude broke through the $70 per barrel level for the first time since 2014. 

Short-term Treasury yields extended further reaching new multi-year highs.  The 2-Year U.S. Treasury yield increased to 2.53%.  The 10-Year U.S. Treasury yield closed the week at 2.96% leaving the 2-10 spread at the flattest level in a decade at 0.43%.  The 2-30 spread is not much higher at 0.55%.

The S&P 500 rose during the week at the tail end of a favorable Q1 corporate earnings season.  The index closed the week up 2.4% at 2,727.  Calm inflation reports and a decline in overall market volatility helped the Dow to hold up its seventh consecutive day of gains, the longest streak since February. 

Notable economic releases next week include Retail Sales, Housing Starts and Industrial Production.  The weekly Baker-Hughes Rig Count report will have more eyes on it than usual for signs of crude exploration and production increases at current higher price levels. 


Weekly Market Commentary

April 30th – May 4th

Personal Consumption Expenditures (PCE) came in as expected at 2% on a year-on-year basis.  The Core reading, excluding food and energy, increased to 1.9%, just below the Fed’s 2% target level.  Higher hospital costs along with increased Medicare and Medicaid expenses (after Congress ended the bundling requirement) were contributing factors.  Decreasing prices of cell phone service plans from last March rolling off the 12-month figure also factored into the increase.

Unemployment decreased more than expected after holding steady at 4.1% for six months to 3.9%, the lowest since December 2000.  Wage growth came in just below expectations at 2.6% on an annual basis, but likely “just right” for more volatile markets with eyes wide open for signs of inflation.   Modest wage growth could very well be a factor of a mismatch between available workers and employer skill requirements.  We would expect the tightening labor market to drive wages higher further into the calendar year.  April nonfarm payrolls rose just 164k, under the consensus estimate, but net net about in line with expectations when factoring in the incremental 31k added to the revised March figure.  Employers have added jobs every month since October 2010, a 91 month period of growth that stands as the longest on record. 

Manufacturing activity slowed modestly in April as measured by ISM and some of the regional surveys, but remains in expansionary territory.  While U.S. factory activity remains robust, manufacturers may be uneasy about trade policy threats.  The “backlog of orders” component of the ISM report rose, suggesting tight labor market conditions may also be a factor. 

The 10-Year U.S. Treasury yield moved back below the notable 3% level surpassed last week.  The benchmark Treasury closed the week where it started at 2.95%.  The FOMC left rates unchanged during their midweek meeting and towed a very similar line in terms of inflation and growth expectations, perhaps with a bit more hawkish tone.

The S&P 500 finished the week at 2,663, marginally lower than where it started.  Stocks were mixed in and up and down week, failing to make any headway despite a broad-based rally in the final trading session on Friday. 

Notable economic releases next week include the Consumer and Producer Price Indices, Consumer Credit and Import and Export Prices.


Weekly Market Commentary

April 23rd – April 27th

The initial reading of first quarter GDP exceeded expectations increasing at a 2.3% annual rate. Personal consumption, the largest component of GDP matched estimates of 1.1% but marked the smallest gain since 2013.  Transitory components that were headwinds a quarter ago boosted the headline number. Trade added 0.2% while inventory investment contributed 0.4%.  Despite the deceleration of economic expansion in the quarter, we are maintaining our base case of 3% GDP growth for 2018.

Regional manufacturing surveys produced mixed results for the month of March.  Kansas City manufacturing matched its highest level in survey history while Richmond manufacturing index posted its first negative (contracting) number since April of 2016. The national manufacturing figures-Chicago Fed National Activity survey, Markit PMI, and ISM painted a much clearer picture of continued expansion.

New orders for durable goods increased by 2.6% in the month of March, an index that has expanded four of the past five months.  Transportation equipment drove the results as commercial aircraft orders surged 44%.  Durable goods-ex transportation disappointed, remaining flat as demand for machinery and computers declined. 

The housing market rebounded as New Home Sales rose 4% in March and February sales were revised from -0.6% to 3.6%.  Existing home sales beat estimates of 0.2%, rising 1.1% to 5.6 million.  However, mortgage rates rising in parallel with the 10-Year U.S. Treasury will create a headwind once existing rate locks begin to roll-off. 

The yield on the benchmark 10-Year U.S. Treasury surpassed 3.0% for the first time in four years but treasuries rallied to finish the week at 2.96%.  The 2-year yield has more than doubled over the past 12 months, finishing the week at 2.48%. 

Company earnings dominated headlines as 147 of the S&P 500 constituents reported this week.  Despite the overwhelming number of positive earnings announcements, the S&P 500 closed largely unchanged for the week at 2,669. However, the market saw large movements from technology companies like Amazon, Facebook and Google as their earnings calls were digested.   

Notable economic releases next week include the PCE inflation figures and the unemployment report. 



Weekly Market Commentary

April 15th – April 20th

Retail sales improved in March.  However, the increases are unlikely to change the forecast for first quarter GDP growth of 2.0%.  Headline retail sales increased 0.6%, considerably above the -0.1% posted in February and the largest increase since November.  The retail sales control group, which is the direct input for GDP, increased by 0.4%, up from flat in February.  Consumption clearly slowed into the New Year, as the annualized quarterly change in the control group for the first quarter was only 0.8%, well below the rate of 10.4% posted in the fourth quarter.

The historically low level of housing inventory appears to have some relief on the way despite colder-than-average weather across much of the country.  Housing starts increased by 1.9%, and are now up 10.9% on a year over year basis.  Additionally, building permits increased by 2.5% in March, up 7.5% from year ago levels.  Increasing wages, lower taxes, an improving economy, and still historically low interest rates will likely lead to a continued high level of demand. 

Industrial production increased by 0.5%, exceeding the forecast of 0.2%.  The pace of growth was however, much slower than the 1.0% pace in February.  The acceleration in manufacturing activity was attributable to the strong finish in 2017, and time will tell if the threat of tariffs and potential global economic headwinds begin to slow the rate of growth in the coming months.

U.S. equities had a solid gain for the week through Thursday.  However, concerns of declining smartphone demand resulted in an IT sector decline, led by Apple and chip and hardware suppliers.  For the week, the S&P 500 closed higher by 0.5% at 2,670.

The yield on the benchmark 10-Year U.S. Treasury opened at 2.82%, and steadily increased to 2.93% to end the week.  The spread between the 2-Year and 10-YearTreasury widened slightly to 0.49%.  The shape of the yield curve is likely to remain “flat” for the quarter, as the Federal Reserve continues to target at least two additional rate increases this year and long-term rates are likely to remain capped by a below target rate of inflation and lower European and Japanese yields.

There are several notable economic releases next week including, first reading U.S. 1Q-18 GDP, Existing and New Home Sales, Durable Goods orders and the Markit U.S. Manufacturing PMI report.


Weekly Market Commentary

April 9th – April 13th

The Consumer Price Index (CPI) inflation measure was reported in line with expectations.  On a year-on-year basis headline CPI rose 2.4% and the Core (ex-food and energy) rose 2.1%.  The expected increase in the core rate from 1.9% the prior month is attributable to the index “breaking free from wireless drag” as a sizable price decline from cell phones fell off the year ago measure.  With Core CPI back above 2%, economists are more optimistic that the Fed’s preferred gauge of inflation, Core Personal Consumption Expenditures (PCE), may soon follow suit.  The Producer Price Index (PPI) was reported modestly higher than anticipated at 3.0% versus an estimated 2.9%. and 2.7% versus 2.6% consensus for the core reading.  Pricing pressures at the wholesale level have come from food and services including logistics services and software publishing.

U.S. equities had a strong start to the week into the initial trading session as global trade protectionist rhetoric quieted down over the weekend.  More headlines from Washington however, all but erased the gains late in the day as reports broke of an FBI raid on the office of President Trump’s personal lawyer Michael Cohen.  Geopolitical pressures resurfaced midweek with concerns of rising tensions between the U.S. and Russia over Syria.  Markets followed suit with the tenor of global headlines as has become far more common this calendar year.  Amid all the headline noise, first quarter 2018 earnings season kicked off in earnest this week with solid expectations for another quarter of double-digit earnings growth.  For the week, the S&P 500 closed higher by 2% at 2656.

The FOMC meeting minutes released on Wednesday were met with minimal reaction by markets.  Our most notable takeaway was the fact that each of the meeting participants agreed that the outlook for the economy beyond the current quarter had strengthened in recent months, although the members’ outlook on the path of rates does not share the same unanimity.  The “dot plot” of members’ projections of future rate paths remains widely dispersed, with the overall consensus for two to three more hikes to the short-term Fed Funds Rate this year.  Given the data we’ve seen, two incremental hikes seems the most plausible scenario.  The probability of an incremental hike in May priced in from the futures market stands at 30%.

The yield on the benchmark 10-Year U.S. Treasury ebbed and flowed modestly with risk sentiment before closing the week higher by 4 basis points at 2.82.  The spread between the 2-Year and 10-YearTreasury narrowed to 0.47% on solidified expectations of further hikes on the short end of the yield curve.  Oil prices rose to a nearly three year high on the news of potential retaliatory military action in the Middle East. 

Notable economic releases next week include Retail Sales, Industrial Production and Housing Starts.  Stay tuned as markets should be anything but boring as we move into the height of earnings season combined with whatever the next impulsive tweet or geopolitical headline turns out to be. 


Weekly Market Commentary

April 2nd – April 6th

Non-farm payrolls for March grew by 103k jobs, falling short of the 185k estimate.  Construction and retail workers felt the lion’s share of the pullback after spikes in those industries last month suggesting some degree of weather impact given the unseasonably warm February and the string of Nor’easters in March.  Payrolls from the prior two months were revised downward by 50k jobs as well.  The headline unemployment rate remains at 4.1% for a sixth straight month, still the lowest since 2000.  Average hourly earnings increased 2.7% as expected.  This level of wage growth feels like a “goldilocks” number to us, not too hot to stoke fears of inflation while sufficient enough to support consumption, the key to sustained economic growth. 

The ISM Manufacturing Index came in modestly below forecast, but still well into expansionary territory at 59.3 (readings above 50 signify expansion.)  Another month of solid spending on single-family home construction was reported.  The nation’s trade deficit deepened to $57.6B in February, indicating a likely pullback to Q1 GDP from net exports.

U.S. equities started and ended the week with selloff sessions related to trade tariff headlines, bookending three positive days for stocks.  The exchange of tariff jabs between the U.S. and China drove market sentiment in a risk on again / off again manner depending upon the interpretation of the public blows by both sides.  In the end, the S&P 500 closed down 1.38% for the week at 2,604.  The more technology-focused NASDAQ index closed down 2.10%, crossing below the 7,000 level at 6,915.

Fed Chairman Jerome Powell delivered his first economic-outlook speech in Chicago on Friday.  He stressed a balanced view of economic risks, citing a subdued view of wage growth, noting inflation has the potential to pick up this spring.  After a robust search including 100 candidates and 13 interviewees, John Williams was unanimously elected as the next NY Fed President as anticipated.  Williams brings a significant level of monetary policy experience and a reputation as a policy centrist from his years at the San Francisco Fed.

Interest rates rose modestly during the week with the 10-Year U.S. Treasury closing 3 basis points higher at 2.77% after trading within a range of 2.72%-2.83%.

Notable economic releases next week include CPI and PPI inflation, Import and Export Prices along with the release of FOMC minutes

Weekly Market Commentary

March 26th – March 29th

The third and final estimated Q4 GDP took the measure on a full circle trip, with a strong initial reading revised downward then subsequently back up.  The measure of total goods and services produced in the United States was reported back at a robust level of 2.9%.  With all the component revisions said and done, consumption accounted for 2.8% of the figure, indicating a strong fundamental basis as opposed to some of the more transient components that swung around between estimates. 

Personal Income rose 0.4% in February, in lock step with the prior month.  Consumption rose 0.2% as expected.   Personal savings increased from 3.2% to 3.4% meaning it has almost fully recovered to the pre-hurricane level of 3.5% in August.  On the inflation front, Personal Consumption Expenditures (PCE) rose by 1.8% on a year-on-year basis boosted by energy costs at the headline level, a tenth more than estimated, and 1.6% for the core, as expected.

The Chicago Fed National Activity Index came in stronger than expected.  U.S. manufacturing remains robust.  The Dallas and Richmond Fed Manufacturing Indices pulled back from lofty levels, although the capital expenditures component in the Richmond survey reached a 20-year high. 

U.S. equities rallied out of the gates as concerns of looming U.S. trade sanctions with China eased.  On Tuesday, trade friction concerns resurfaced causing equities to pare back gains as Tech, media and telecom stocks trended lower.  Equities rallied to end the shortened trading week with the S&P 500 finishing at 2640, up from 2588 while the Nasdaq and DOW finished the week slightly higher as well. 

Heightened inflation expectations have been short lived as the yield curve has resumed flattening.  On the week, the 10- year treasury rallied, finishing the week at 2.74%, 0.075% lower than prior week’s close.  The 2-10 spread compressed below .50% for the first time since January, now at .46%.   

Notable economic releases next week include the preliminary employment report and manufacturing figures. 

March 19th – March 23rd

As expected, the Federal Open Market Committee raised short-term rates by 0.25%.  Newly appointed Federal Reserve Chair Jerome Powell communicated a very similar message on monetary policy and expectations as his predecessor in his first official meeting as Chair.  The FOMC downgraded their current view on growth from “solid” to “moderate” given the revision of Q1 GDP estimates closer to 2% than 3%.  Forward guidance on growth remains positive and two incremental rate increases for 2018 remains the consensus.

February Durable Goods orders recovered strongly posting a 3.1% increase and modest upward revision for January to -3.5%.  President Trump signed a budget extension preventing another government shutdown. 

U.S. equities experienced a sharp selloff, with technology and bank stocks falling by the greatest amount.  Investor concerns over trade tariffs and rising interest rates heightened throughout the week driving indices markedly lower in the final two trading sessions.  For the week, the S&P 500 declined -5.9%.  The Dow lost over 1,400 points, declining -5.7%.

The U.S. 10 year Treasury yield ended the week at 2.81%, 5 basis points below where it started.  The bellwether Treasury traded in a range of 2.92-2.79% during the week, declining off the peak reached on Wednesday prior to the FOMC announcement.

Key economic data released next week includes a final Q4 GDP estimate, numerous regional manufacturing reports along with Personal Income and Outlays.


Weekly Market Commentary

March 12th – March 16th

Inflation reports this week were tame as expected.  The Consumer Price Index increased 2.2% on a year-on-year basis through February in line with estimates.  Core CPI was 1.8%.  Year-on-year Producer Prices increased modestly to 2.8%, still below the 3.1% level at the end of calendar year 2017.  Marginally higher import prices along with trade tariff concerns have raised eyebrows to the concept of “importing” inflation.

The February Retail Sales report disappointed, coming in at -0.1% versus an estimated 0.3%.  January sales were modestly revised upward from -0.3%, but remain negative at -0.1%.  This marks the third month of disappointing consumer spending data.  Excluding autos and gasoline, the results were modestly stronger at 0.2% in February following 0.1% in January.  While consumer confidence remains robust, spending has yet to catch up to sentiment causing some economists to decrease GDP forecasts. 

Regional manufacturing indices Empire State and Philly Fed both reported continued strength followed by a stronger than expected Industrial Production report of 1.1%.  Housing Starts and Permits continued to weaken in February. 

U.S. equities declined during the weak in a primarily risk off environment favoring bonds.  For the week, the S&P 500 declined -1.24% and Dow -1.54%.

The U.S. 10 year Treasury yield decreased 0.05% during the week to close at 2.84%.  Trading was fairly range bound within a 0.10% band in the week before the FOMC meets to discuss monetary policy.

All eyes will be on the Fed next week as the much anticipated March meeting of the FOMC takes place.  A 0.25% further hike in the Federal Funds Rate is expected.  Key economic data released next week includes Existing and New Home Sales along with Durable Goods.


Weekly Market Commentary

March 5th – March 9th

The highly anticipated employment data came in at just the right “temperature” with strong job growth and a modest pull back in wage growth appeasing concerns of an inflation spike.  Non-farm payrolls increased 313k, ahead of the forecast of 205k.  The headline unemployment level remained at 4.1%.  Wage growth as measured by year-on-year average hourly earnings increased at an annual rate of 2.6%, modestly below the prior 2.8% (revised) reading.  The pullback may be more related to a tick up in Labor Force Participation last month from 62.7% to 63.0% (perhaps tax cut related), and workers working more hours last month, than a change in actual levels of wages.

The ISM Non-Manufacturing Index exceeded expectations with a print well into expansionary territory.  New orders continued to strengthen along with order backlogs.  The Service Sector PMI strengthened as well noting a strong upturn in new business and an acceleration of price inflation.  Construction contractors noted ongoing difficulty finding skilled labor.  Factory Orders were less positive, falling 1.4% in January following weak Durable Goods orders released last week. 

U.S. equities increased modestly through the beginning of the week, overcoming concerns about the impact of trade tariffs and departure of top economic advisor Gary Cohn from the Whitehouse.  Stocks rallied following the strong employment and wage data release to cap the week with a strong final session.  The S&P 500 advanced on the week by 3.5%.

The U.S. 10 year Treasury yield closed modestly higher on the week at 2.89% after trading in a range of 2.90-2.82%.  Decreased concern of inflation pressures from the wage data reported Friday had little impact on the bond market indicating investors likely feel the expected upcoming Fed tightening is adequately reflected in the Treasury market.

Key economic data released next week includes CPI and PPI inflation data, Retail Sales and Housing Starts. 

Weekly Market Commentary

February 26th – March 2nd

The revised estimate for Q4 GDP, already lower than expected in the first report, was reduced to 2.5% from 2.6%.  The latest revision was driven by a larger inventory drawdown by companies than was previously estimated.  Despite the downward revision, we are somewhat comforted by the fact that changes came from the more transitory components of economic growth such as balance of trade and inventories while the largest component, consumer spending, remains unchanged at 3.8%. 

New home sales followed weakness in existing home sales, declining 7.8% in January to a seasonally adjusted annual rate of 593,000, but down only a modest 1% from year-ago levels. Additionally, pending home sales declined by 4.7% to the slowest pace in over three years.  Near record low inventory levels are constraining housing activity, as demand continues to exceed available supply.

Durable goods orders declined by 3.7% in January, below the estimate of -2.0%, while the prior month was revised down to 2.6%, from 2.8%.  The larger than expected decline was mostly attributable to the often-volatile commercial aircraft segment, but the pace of capital expenditures in the second half of 2017 appears to be slowing into 2018.

The Institute for Supply Management manufacturing survey increased at its fastest level since May 2004 to 60.8, up from 59.1 in January with 9 of the 10 series indexes expanding, while 15 of the 18 industries reported growth in the month.  Overall, business sentiment remains strong and growth appears likely through the first and into the second quarter.

Inflation measured by the Personal Consumption Expenditure Core Index was unchanged at 1.5% and the PCE Deflator was also unchanged at 1.7% year-over-year.  Despite inflation levels below the Federal Reserve’s long-term target of 2%, Fed Governors appear convinced that inflation will continue to increase and another rate increase in March is almost a certainty.

U.S. equities started the week with a positive return for the S&P 500 on Monday, but weaker economic data, testimony from Fed Chairman Powell, and a steel tariff announcement from President Trump on Thursday led to equity declines and increased volatility throughout the middle of the week.  Despite starting Friday off with a swift decline, market rallied to finish the day in positive territory.  Overall, the return for the week was -2.3%.

The U.S. 10-year Treasury yield began the week at 2.86%, bottomed at 2.80% on Thursday before ending the week almost unchanged at 2.85%.  After a steady rise throughout February, yields appear to be finding some footing until further economic data is processed, in particular, inflationary pressure.  The spread between the 2-year and 10-year U.S. Treasury was unchanged at 0.62%.

Key economic data released next week includes employment, ISM non-manufacturing, factory orders, consumer credit, and the release of the Federal Reserve Beige Book.

Weekly Market Commentary

February 19th – February 23rd

The FOMC minutes from January struck a positive tone on economic growth and renewed confidence on inflation reaching the Fed’s target of 2%.  A number of Fed Governors took their opportunity to pontificate on their own (unofficial) views of Committee policy during the week.  Existing home sales declined unexpectedly, off -3.2% for January.  While inventory of homes for sale remains below long-term averages, it ticked up modestly from 3.2 to 3.4 months, a 4% increase from December, but still 9% below supply from January of the prior year.

U.S. equities began the holiday shortened trading week with a pullback through the first two sessions with negative sentiment from a disappointing earnings report from Walmart.  After a wild rollercoaster swing (Dow up 300, down 450) following the release of the Fed minutes, stocks finished the final trading session with a strong broad-based rally.   The S&P 500 closed the week with a net gain up 0.55%.

U.S. Treasury yields continued to rise during a week of heavy new supply with $250bn of new Treasury offerings.  The release of upbeat minutes from the January FOMC meeting pointed toward steady economic growth consistent with further rate tightening. 10-year U.S. Treasury yields peaked at 2.95% during the week before settling at 2.87%.  The spread between the 2-year and 10-year U.S. Treasury has widened to 0.62%.

Key economic data released next week includes a revised estimate for Q4 GDP, New Home Sales, Durable Goods Orders, and national PMI, ISM manufacturing data.


Weekly Market Commentary

February 12th – February 16th

Consumer prices ticked up faster than anticipated in January with the Headline CPI reading coming in at 2.1% on a year-on-year basis relative to the consensus estimate of 1.9%.  Core CPI (excluding food and energy) was 1.8% versus an estimated 1.7%.  The key components of the increase were higher gasoline and apparel prices as well as a jump in the cost of hospital services.  The weaker dollar was a contributing factor to the large monthly increase in apparel costs given the high degree of imports.  Shelter costs remain inflated, but are no longer rising in the latest data. 

Retail Sales softened in January with a decline of -0.3%.  More disappointing was the meaningful revision to the initially strong holiday spending figures of the prior two months.  December was revised to flat from 0.4% and November decreased by 0.1% to a still robust 0.8%.  Weakness in auto sales weighed on the data, likely a result of a falloff in demand after accelerated vehicle replacements following the hurricanes.  A pullback in building materials may have been weather related, but weakness in non-store retailers (ecommerce) reported as flat in January and revised down from 1.2% to 0.5% in December is the most negative component of the release given its impact on the personal consumption component of GDP.

Industrial Production pulled back 0.1% in January.  A downward revision to December data was nearly fully offset by an upward revision applied to November.

U.S. equities had strong gains for the week after a short-term pause on Wednesday following the higher than anticipated inflation news.  Markets quickly stabilized and found support into a broad-based rally thereafter with the S&P 500 regaining ground back above 2,700 and the Dow back above 25,000.  Both indices advanced 4.3% for the week.

Treasury yields rose on the anticipation that the Fed may be more prone to raise rates as inflation measures rise.  The yield on the 10-Year U.S. Treasury jumped 10 basis points to 2.92% following the CPI release on Wednesday.  The bellwether Treasury traded in a wide range of 2.81-2.93% during the week before settling at 2.87% in the final session.

Next week is a holiday shortened trading week with the U.S. stock and bond market closed on Monday in observance of President’s Day.  It is a week light on key economic reports with existing home sales and release of FOMC minutes the most noteworthy.


Weekly Market Commentary

February 5th – February 9th

Jobless claims in the U.S. declined to a nearly 45 year low adding further support to the favorable employment outlook.  ISM and PMI non-manufacturing figures were strong as well showing positive growth in new orders and employment components.  Report of a widening trade gap between imports and exports may be a headwind to GDP again in the current quarter.

Heightened volatility in the stock market carried over into this week with a sharp sell-off in the first trading session followed by large swings in both directions throughout the week.  The S&P 500 reached correction territory on Thursday, defined as a peak to trough decline of greater than 10%.  Broad swings in the final trading session ended on a positive note recouping some of the earlier losses.  Strong corporate earnings continued to roll in throughout the week.  Market volatility has decoupled from fundamentals for the time being with major U.S. stock indices closing the week off just over 5%. 

U.S. Treasury yields gyrated throughout the week with the momentum of risk off capital flight-to-quality to bouts of risk on trading.  The 10-Year U.S. Treasury traded in a range of 2.88% to 2.66% before closing the week where it started back at 2.85%.  The UST yield curve steepened during the week with a final 2-10 spread of 0.79%.  Oil plummeted to the lowest point in six weeks, back below $60 per barrel, with rising inventories and rig counts.

A two year budget agreement was passed in Washington following another short-term government shut down which puts debt ceiling debates on hold for another year.

Notable economic releases next week include CPI, retail sales, industrial production and housing starts.  The details of the CPI report release on Valentine’s Day will likely define the fine line formed last week between speculator’s love and hate of risk assets. 

Special Update: Keeping Recent Stock Market Declines in Perspective

Feb 6, 2018

Large declines like the market experienced yesterday, with the Dow dropping 1,600 points and closing the trading day off 1,175 points, can be attention grabbing given that markets have risen for two years without a substantial pullback. The decline may have caught some investors off guard, with no help from sensational headlines in the financial press. Keep in mind that the large point drop was a less than 5% decline, an occurrence that has taken place numerous times throughout history and is no reason for alarm. As noted in our recent quarterly letter, economic fundamentals and corporate earnings are the strongest they’ve been thus far in the nine years since the recession, creating a positive backdrop for long-term investors.
To put the recent stock market pullback into perspective, the S&P 500 has historically experienced a “correction” (decline exceeding 10%) an average of once per year and entered a “bear market” (pullback of at least 20%) on average once every three years. In fact, while handsomely rewarding long-term investors with a return of 7.4% per year over the past 20 years, the S&P 500 has experienced a wide range of drawdowns in each calendar year as shown in the exhibit below. Notably, calendar year 2017 shows the smallest degree of pullback as complacent investors bid up stock prices in a period of extremely low volatility. That optimism carried over into 2018 with the S&P 500 advancing 7.5% in the first few weeks, before giving back those gains in the past week.
The key to any investment discipline is clearly defining goals and time horizon and matching an investment strategy with the highest probability of achieving success. Markets will trade on speculation, biases and emotion over the short-term, but we remain confident that over time they reflect the value of the underlying companies they represent. As with every other market pullback our experienced investment team has worked through, we intend to maintain our investment discipline and focus on capitalizing on opportunities that present themselves during turbulent periods.

Click here for the full article and a graphic representation of Intra-Year dips in the S&P 500 over a twenty year span.

Weekly Market Commentary

January 29th – February 2nd

Nonfarm payrolls rose 200k, ahead of the estimated 180k, adding to the positive employment outlook.  Headline unemployment remained unchanged at 4.1%, however stubborn wage growth expanded at 2.9%, the largest increase since 2009 and well ahead of expectations.  Both the ISM and PMI indices point to robust manufacturing results.  Output and new orders expanded at the highest level in a year and purchasing activity rose at the steepest pace since September 2014.  The Bloomberg U.S. Consumer Comfort Index rose with strong economic data and now stands at the highest level since 2001.  Personal Consumption Expenditures (PCE) declined modestly to 1.7% year-on-year from 1.8%.  The Core reading, ex-food and energy, was unchanged at 1.5%. 

The S&P 500 rediscovered volatility this week and logged the steepest weekly decline in two years, immediately following the strongest January return (+5.6%) since 1997.  Investors took profits sending the S&P 500 to a -3.8% decline for the week to 2,762.  Other major indices declined in lockstep with the Dow down -4.1% and the NASDAQ off -3.5% for the week.

U.S. Treasury yields rose throughout the week to levels not seen since 2014 driven by strong economic data and hawkish Fed comments.  As expected, in Janet Yellen’s last FOMC meeting, no rate announcements were made, however 3-4 Fed Funds hikes this year are now anticipated.  The 2-Year U.S. Treasury reached 2.14% and the 10-Year 2.83%.  Yields outside of the U.S increased as well.  10 year German Government Bond yields have doubled this year to over 75bps and JGBs (Japan) have risen from 0% in Q4 2017 to the upper policy band of 10bps.

Next week is light on economic releases.  ISM and PMI services data and JOLTS jobs report will be released.  The Fed Governors will make their usual speaking rounds to pontificate on their views of the FOMC discussions.   


Weekly Market Commentary

January 22nd – January 26th

The first estimate of Q4 GDP was reported at 2.6%.  While lower than the 3.0% expected year-on-year rate of growth, the shortfall was due to more transitory factors such as imports and inventories.  Personal consumption was a very healthy 3.8%, business fixed investment 6.8% and residential investment 11.6%.  These underlying figures tie into strong retail sales reported through the holiday spending season and support our thesis of positive economic momentum rolling into Q1 2018.   

Existing home sales declined 3.6% in December driven primarily by a lack of supply which hit a 3-year low.   Calendar year 2017 was the strongest for existing home sales since 2006 with 5.51 million properties changing hands. 

The U.S. government shutdown that went into effect last Friday at midnight ended on Monday.  A brief reprieve on budget debates is in place until February 8th.  The U.S. dollar continued to weaken exacerbated by headlines from Davos regarding Treasury Secretary Steve Mnuchin’s “preference” for a weaker U.S. dollar in a quote taken out of context that “a weaker dollar is good for trade”; citing the benefit afforded to exporters when the greenback weakens.  For those able to uncover his full statement beyond the sensational headlines, he also stated that the value of the dollar is determined by the market, is not a concern in the short-term and “in the longer term, a stronger dollar is a reflection of the strength of the U.S. economy.”  

U.S. equities continued their rise through a busy week of earnings announcements.  The S&P 500 advanced further into record territory closing at 2,872 as did the Dow closing at a new high water mark of 26,614.  The NASDAQ came back from a modest midweek pullback to a record 7,505.

U.S. Treasury yields continued to rise with the 2-Year closing up at 2.11%.  The yield curve remains historically flat with a 55 basis point spread between the 2-Year and 10-Year closing at 2.66%.

Notable economic releases next week include Factory Orders along with PMI and ISM manufacturing readings.  The FOMC holds a meeting next week in which no rate announcements are expected.  

Weekly Market Commentary

January 16th – January 19th

The Empire State Manufacturing Index declined to 17.7 from an estimated 19.0 level and the Philly Fed Manufacturing Index pulled back to 22.2 from an expected 25.  Some degree of the decline may be explained by unusually frigid weather in the Northeast and the “Bomb Cyclone” storm.  Industrial Production was revised down to -0.10% in November while expanding 0.9% in December. 

Single family Housing Starts experienced a seasonal decline in December while Building Permits were strong.  Initial jobless claims hit the lowest levels in a decade as the job market continues to tighten. 

U.S. equities advanced further in a holiday shortened trading week.  The Dow broke through yet another 1,000 point milestone in record time passing the 26,000 mark shortly after the opening bell in the first trading session of the week and closing beyond the new record in only 8 trading days!  The S&P 500 advanced further into record territory ending the week at 2,810. 

Yields rose across the U.S. Treasury yield curve this week as investors expect continued central bank tightening.  The 10-Year U.S. Treasury yield rose 0.11% to 2.66%, a level not broached since March of last year. 

Notable economic releases next week include an initial estimate of Q4 GDP and PCE inflation along with new and existing home sales. 

Weekly Market Commentary

January 8nd – January 12th

Retail sales rose for a fourth straight month capping the strongest November-December holiday spending period since 2010.  Overall sales rose 0.4% in December with 9 of 13 major categories showing increases.  The November figure was revised upward as well to 0.9% from 0.8%.  Excluding autos and gas, this was the largest fourth quarter increase in Retail Sales in 12 years.  A report released earlier in the week on consumer credit balances showed a spike in December with the highest monthly increase in 16 years.  In the latest reading, credit surpassed 25% of disposable household income for the first time. 

Core Inflation ticked up as well in December with the Core Consumer Price Index increasing 0.3% in December and 1.8% year-on-year.  Rising shelter costs were a driver as rents ticked up in conjunction with housing prices. 

U.S. equities continued their New Year climb during the week until Thursday, the first day of the year with a down trading session.  Markets then rallied again on Friday following the stronger than expected Retail Sales figures.  The S&P 500 advanced from 2,743 to 2,786 over the course of the week and the Dow Jones Industrial Average added more than 500 points to extend its meteoric rise. 

The U.S. 2-Year U.S. Treasury yield topped 2% for the first time since the financial crisis, more than doubling since the pre-election days of 2016.  The implied probability of a Fed rate hike in March surpassed 80% following the latest inflation data release.  The Ten 10-Year U.S. Treasury yield increased as well to end the trading week at 2.55%

U.S. stock and bond markets will be closed on Monday in observance of Martin Luther King Jr. Day.  Notable economic releases next week include Industrial Production, Housing Starts and regional manufacturing readings from Empire State and Philly Fed.


Weekly Market Commentary

January 2nd – January 5th

The December headline unemployment rate in the U.S. remains unchanged at 4.1%.  The change in Nonfarm Payrolls fell short of expectations at 148k new jobs.  Average hourly earnings grew during the month at 0.3%, while year-over-year growth remained modest at 2.5%.  A total of 2.06 million jobs were created in the U.S. in calendar year 2017.  That is less than 2016, but modestly more than was expected at the beginning of the year.  December manufacturing reports from ISM and PMI showed continued solid expansion.  New Orders were particularly strong.  November Factory Orders came in meaningfully higher than the previous month increasing 1.3%. 

After setting an unprecedented number of records in 2017, U.S. equity indices charged forward into the New Year quickly reaching new milestones.  The S&P 500 crossed the 2,700 mark closing at 2,742.  The NASDAQ closed above 7,000 ending the week at 7,136.  Not to be outdone, the Dow broke through another 1,000 point milestone in only five short week to end at 25,295.  The VIX “fear gauge” is back to near record lows. 

The Ten 10-Year U.S. Treasury yield rose in the first trading week of the New Year from 2.41% to close at 2.47%.  The Treasury yield curve continued to flatten with short-term rates rising more quickly.  The spread between the 2-Year and 10-Year U.S. Treasury fell below 50 basis points during the week for the first time in over a decade. 

Notable economic releases next week include inflation measures of CPI and PPI along with December retails sales. 



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