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The spotlight this week shone brightly on one major release:  second quarter Gross Domestic Product (GDP).  GDP is the annualized quarterly measurement showing whether our economy is expanding or contracting.  The sweet spot for the US economy is between 2-4%.  Q2 was expected to be the worst release ever recorded as the bulk of the time period was when the economy was in full shutdown mode and it did not disappoint.  As bad as it was, it still managed to beat consensus.  Expectations were for a -34.6% but the actual figure was  -32.9%.  To put this abysmal number into perspective, it’s far more visually striking when you see it in a chart.  Here is the US GDP since 1947:

As you can see, even in the Great Recession of 2008-2009, GDP never hit double digit losses.  Second quarter 2020 is well over three times worse.  These are truly unprecedented times yet optimism holds as the terms “bounce back” and “V-shaped recovery” are frequently used with respect to Q3 and Q4 expectations.

In other economic news this week, Durable Goods and Capital Goods Orders both came in better than expected.  The Federal Open Market Committee (“The Fed”) met and left rates and policy unchanged.  Economists were looking for more forward guidance; that is, what is the Fed’s plan moving forward if that V-shaped recovery takes longer than anticipated?  Instead, we got a pledge that they will continue to use all tools necessary to ultimately reach its goal of low unemployment and stable inflation.

Speaking of unemployment, the second most concerning statistic of the week was the uptick in Weekly Jobless Claims.  The 1.434 million new applicants for unemployment assistance figure was up from the prior week and is the second week in a row with an increase.  This is likely indicating more business are re-shutting as the COVID-19 virus keeps flaring up regionally.

Lastly, Personal Income and Consumer Spending both matched expectations; Core PCE (personal consumption expenditures) inflation came in at 0.9%, well short of the Fed’s 2% target; and both Conference Board consumer confidence and University of Michigan Sentiment Index came in below consensus.

Stocks were mixed on the week with NASDAQ leading the way at +3.7% thanks to strong earnings results in the tech sector.  The S&P 500 Index was up +1.7%.  Yields continued to fall during the week with the bellwether 10-Year U.S Treasury lower by five basis points to 0.54%, testing all-time lows.    

Key economic releases for next week include ISM and Markit Manufacturing and Services indices; Weekly Jobless Claims; and the July employment report.  


Weekly Market Commentary

July 20th – July 24th

U.S. jobless claims rose last week to 1.42 million.  This is the first week-over-week increase since March and the 18th consecutive week in which new claims have surpassed 1 million.  The rise comes at a time when COVID-19 cases are also increasing and shows that the jobs recovery is being challenged.  Continuing jobless claims were reported marginally better than expected at 1.62 million.  

Existing Home Sales spiked by over 20% on a month-over-month basis to an annual pace of 4.72 million homes.  Although the reading is still -11% below this time last year, the National Association of Realtors described the current environment as “red hot” in their latest report.  New Home Sales were equally strong, advancing 14% from the prior month to 776k and back in line with where they were during the pre-pandemic boom.  Extremely attractive mortgage rates are a tailwind for buyers.  

The S&P 500 Index moved briefly into positive territory on a year-to-date basis before pulling back.  For the week, the index was lower by -0.3%.  The NASDAQ index finished the week lower by -1.3%, weighed down by large cap tech stocks, but remains well ahead by over 15% this calendar year.   Yields continued to fall during the week with the bellwether 10-Year U.S Treasury lower by 7 basis points to 0.59%.  

Key economic releases next week include the highly anticipated first look at Q2 GDP, closely followed Weekly Jobless Claims and Durable Goods Orders.  The Federal Reserve will hold their next 2-day policy meeting.  


Weekly Market Commentary

July 13th – July 17th

After beginning the week with increased volatility and declines, markets reversed course to end the week on hopes of a coronavirus vaccine and a potential second stimulus package.  For the week, the S&P 500 closed at 3,225, up 1.2%.   The 10-year Treasury yield was almost unchanged, declining .01% to 0.63%.

Inflation data was the first of several important economic indicators for the week.  Overall, the data was mostly in-line with forecast, with “core” CPI (ex food and energy) increasing 1.2% year-over year and flat from the prior month.  Headline inflation came in at 0.6%, up from 0.1% in the prior month.  Both are well-below the Federal Reserve’s long-term target of 2%.

Retail Sales was the most awaited economic data for the week (contributing close to 70% of U.S. economic output) and surprised to the upside.  The Retail Sales Control Group, used in the GDP calculation, increased by 5.6%, down from 10.1% in the prior month, but well-ahead of the 4.0% estimate and the second consecutive month of strong advances. 

Rounding out the week was some mixed housing data mostly focused on new construction.  Housing starts increased by 17.3%, below the estimate, but still strong and offset by an upward revision form the prior month of almost 4% to 8.2%.  Building permits increased by 2.1%, below the estimate of 6.3% at 1.24 million units, while the prior months reading was revised downward by 0.3% to 14.4%. 

Next week we will continue to closely monitor states’ retrenchment to restrictive safety practices. Key economic releases include new and existing home sales and several service and manufacturing output readings. 


Weekly Market Commentary

July 6th – July 10th

COVID-19 cases on the rise in southern states sparked investor concern of a second wave of lock downs but positive news regarding a drug treatment for the virus helped propel stocks into positive territory for the week. The S&P 500 finished the week at 3,185, up 0.7%; while the DJIA and Nasdaq were up 1.8% and 4%, respectively. The 10-year Treasury yield dropped to 0.64%. 

It was a lighter week for economic releases. June’s ISM Non-Manufacturing index (services and construction) rose from 45.4 to 57.1, much better than expected. The PMI Services Index also came in better than expected although still in contractionary territory (below 50) at 47.9 vs last month’s reading of 37.5. While it is encouraging to see both reports moving in the right direction, there is still much to be done on the path back to normal.  

Producer Prices (PPI) unexpectedly dropped -0.2% in June vs the consensus of a 0.4% increase. Ex food, energy, and trade services, the PPI rose 0.3% in June and fell -0.1% year-on-year.  While global demand has suffered due to COVID-19, corresponding supply disruptions have had a momentary inflationary effect. 

In terms of employment, 1.3 million people filed initial jobless claims last week, less than expected. Continuing claims fell more than expected, as well, from 18.76 million to 18.05 million.  The trend for both initial claims and continuing claims is encouraging, suggesting the economy is reopening faster than it is reclosing. 

Next week we will continue to closely monitor states’ retrenchment to restrictive safety practices. Key economic releases include Consumer Prices, Retail Sales and Housing data. 


Weekly Market Commentary

June 29th – July 3rd

In this holiday-shortened week, the major economic release was the monthly employment report.   Leading the way was Nonfarm Payrolls beating estimates at 4.8 million jobs created.  The Unemployment rate dropped from 13.3% to 11.1%.  When dealing with such abnormal employment figures due to the Coronavirus, it’s important to note that one month’s negative figures weighs heavily on the following month’s percentage change.  In other words, lots of those “newly created” jobs were folks who had been laid-off or furloughed in the past few months just getting back to work as the economy reopens.  The Weekly Jobless Claims came in slightly lower than last week at 1.427 million.  This is concerning as this number is starting to flatten as opposed to dropping precipitously which would indicate true employment recovery.  

Also released this week, the regional business index for Chicago, called the Chicago PMI, came in at 36.6 for the month of June, beating the all-time low for May of 32.3, but not coming close to the estimate of 44.5.  On the national level, the ISM Manufacturing Index was much stronger for June at 52.6, beating May’s 43.1 indicating national manufacturing is picking up steam.  

The Federal Open Market Committee (“the Fed”) released minutes from its June meeting and the biggest takeaway was the need for clarification on “forward guidance” or what conditions the Fed would need to see to raise or lower rates again.  So far, we’ve only seen vague statements such as keeping interest rates low for some time to achieve their 2% inflation target.  Look for the Fed to address this in coming statements.

In the financial markets, the yield on the 10-Year U.S. Treasury closed higher at 0.70%.  Conversely, the 2-year ended lower at 0.16% indicating a steepening (or normalizing) yield curve.  Stocks rebounded nicely for the week, despite the continuing escalation of Coronavirus cases.  The Dow Jones Industrials were up 3.24%, the broader S&P 500 Index rose 4.02%, and the tech-heavy NASDAQ finished the week 4.62% higher.  Look for continued market volatility on the horizon as second quarter economic data and corporate earnings roll out and the virus seemingly makes a comeback.

Notable economic releases next week include ISM Non-manufacturing (services) Index on Monday, Weekly Jobless Claims and Wholesale Inventories on Thursday, and the Producer Price Index on Friday. 



Weekly Market Commentary

June 22nd – June 26th

Weekly Jobless Claims were reported at 1.48 million, modestly higher than expected, but still a decline from the prior week.  Continuing Claims were 19.5 million, also continuing a declining trend, but still indicating a long way to go for employers to call back laid off workers.  

Durable Goods Orders rose 15.8% in May, making up some of the ground lost from the -18.1% decline in April.  They still remain sharply lower from the same month one year ago.  

Personal Income fell -4.2% in May, a smaller than expected drop.  Consumer Spending rose 8.1% in the month, solid, but only a partial offset to the -12.2% drop in April and -6.4% in March.  The savings rate in the U.S. pulled back in May, but still stands at an historically high level of 23%.

Existing Home Sales in May fell to an annualized pace of 3.9 million.  Not far off the mark of consensus estimates, but still lower by -27% from the same month last year.  A decline in mortgage rates and rise in new applications may spark a rebound.  New Home Sales, particularly starter homes, rebounded in May approaching pre-pandemic levels, as available inventory continues to tighten.  

The yield on the 10-Year U.S. Treasury traded in a range of 0.74% to 0.63%, closing lower by 6 basis points on the week at 0.64%.

The S&P 500 Index pulled back for the week by – 2.9% as concerns of a second wave of virus cases potentially leading to a slowed economic recovery dampened investor optimism.  The NASDAQ also declined (-1.9% for the week), but continues to lead other U.S. stock indices on a year-to-date basis, higher by 8.7% with other major averages in the red. 

Key economic reports next week include a Non-farm Payrolls and Unemployment report that will be closely watched, Factory Orders, Jobless Claims, manufacturing data and the release of Fed meeting minutes.  



Weekly Market Commentary

June 15th – June 19th

This week began the fourth month since President Trump declared a national emergency in the wake of the Coronavirus pandemic.  While there are many signs that the economy is getting back on track, second quarter economic data has yet to be released and economists are warning that this is where the real pain lies.  May and first-half June numbers fared far better than March and April, but the unprecedentedly steep declines shown early in the quarter will be difficult to overcome in the short run.  Despite news of up to 18 states showing daily increases in COVID-19 cases, the volatility of the previous week dissipated as the country continues to reopen at a cautious pace.

In economic news this week, two manufacturing surveys (Empire State and Philly Fed) blew away May forecasts to the positive side showing that while yes, the reopening has been cautious, factories are ramping up and regional production is occurring.  However, on a national level, the picture isn’t as rosy.  Industrial production, while positive, underwhelmed at 1.4% vs. 2.9% expectations.  Manufacturing scored a 3.8%, slightly beating estimates.  The win for this week in manufacturing, however, is the fact that both numbers were positive after taking a beating for the past few months.

That said, the biggest news of the week came on Tuesday with the release of May Retail Sales.  Topping out at 17.7% vs. 7.5% consensus, even the staunchest of economists were scratching their heads at such a miss.  This figure even beat the top of the range by over 5%!  Continued positive consumption stats like this will go a long way towards aiding the recovery, but don’t look for this trend to continue.  Misses like this are rare indeed and Americans in general are prioritizing saving as the uncertainty of reopening continues.

Housing starts and building permits rounded out a rather light week of economic data, with both coming in marginally lower than expectations.  Weekly jobless claims continued the trend of decreasing each week, but the numbers are still staggering.  Over one and half million new claims were filed for unemployment help.  While yes, this number marks the 11th straight declining week of claims, one and a half million is still approximately SEVEN times the 2019 average.  

Equity markets rallied on the week after last week’s return of volatility.  Dow Jones Industrials finished up by 1.0%; the S&P 500 and NASDAQ followed suit by finishing up 1.9% and 3.7%, respectively.  On the fixed income side, the 10-Year U.S. Treasury Yield ended the week flat at 0.70%.

Next week, look for new and existing home sales, Markit manufacturing and services indices, Q1 GDP revision, durable goods, weekly jobless claims, personal income, and consumer spending.



Weekly Market Commentary

June 8th – June 12th

Equity markets continued their strong rally straight into the new trading week.  Remarkably, the S&P 500 temporarily moved back into positive territory for the calendar year.  The NASDAQ moved to all-time highs breaking through the 10,000 mark for the first time.  Concerns about a resurgence in virus cases later shifted sentiment to risk-off and stocks sold off on Thursday with a volatile one-day pullback, the likes of which we haven’t seen since March.  A recovery in the final trading session was not enough to move the major averages into the black for the week, breaking a three-week winning streak.  The S&P 500 closed the week off by -4.8% at 3,041.  The NASDAQ declined by -2.3%.

The 10-Year U.S. Treasury Yield traded in a wide range of 0.92 – 0.65% with sentiment swings, including a reaffirmation by the Fed that short-term rates would remain low for the foreseeable future.  The bellwether UST ended the week at 0.71%.

The Federal Open Market Committee (FOMC) met this week and, as expected, made no change to interest rate policy.  The Fed Funds Rate was held near zero and projected to stay there through at least 2022.  The Fed’s appetite for continuing to buy bonds and grow the balance sheet at the current pace remains firmly intact.  

The Weekly Jobless Claims report show that an additional 1.5 million workers filed for first time unemployment benefits last week.  The weekly trend continues to show a slowing in new claims.  Continuing Claims resumed a similar trend and pulled back modestly, now at 20.9 million as workers start to return to re-opening businesses.   

Inflation measures also declined again in May.  The Core Consumer Price Index (CPI excluding food and energy) fell to 1.2% on a year-on-year basis from the prior reading of 1.4%.  A pullback in transportation services (particularly airfares) and apparel were key elements to the deflationary wind that has blown in.  Core Producer Prices, as measured by PPI, pulled back similarly as anticipated to a 0.3% year-on-year level, but the Headline PPI increased modestly in May based on a 6% rise in food costs and 4.5% increase in energy.  Rising labor costs and supply chain issues are however, not yet flowing through to prices the end consumer has been paying.  

Key economic data to be released next week includes Retail Sales and Industrial Production.



Weekly Market Commentary

June 1st – June 5th

A 4-day winning streak for markets was snapped on Thursday, but Friday’s job numbers sent markets soaring. Amidst a backdrop of nationwide protests and the still present Covid-19 virus, the S&P 500 finished the week up by 4.9% to 3,194. The Nasdaq finished the week at 9,814, just under its closing record while the DJIA closed at 27,111, an increase of 6.8% on the week. 

The 10-Year U.S. Treasury Yield also popped on the unexpectedly positive jobs report finishing the week at 0.93%, the highest it has been since March.  

Weekly Jobless Claims were under 2 million for the first time in 10 weeks. The official number was 1.88 million bringing the total since the beginning of lockdowns to 44.6 million. Continuing Claims rose unexpectedly to 21.5 million from a revised 20.8 million. Nonfarm Payrolls rose 2.5 million in May beating estimates by about 10 million. The 2-month average was revised down from -881k to -1.373 million. Average Hourly Earnings fell over 1.0% to 6.7% from last month’s high of 8%, mostly because rehires were lower paid workers. The Unemployment Rate dropped to 13.3%.

The ISM Manufacturing Index rose slightly to 43.1 in May, largely in line with expectations. While the underlying readings of the index (new orders, production, and employment) were well below 40, delivery times skewed the overall number higher. Unfortunately, higher delivery times signal shortages in the supply chain rather than strength in demand. The ISM Non-Manufacturing Index came in at 45.4 for May, up from the prior month’s reading of 41.8. The PMI Manufacturing Index was unchanged from the prior month reporting both domestic and foreign new orders contracting and a substantially reduced workforce. PMI Services came in at 37.5, still well in contraction territory but up almost 10 points from April’s reading. 

Key economic data to be released next week include PPI, CPI and we will hear from the FOMC. 



Weekly Market Commentary

May 25th – May 29th

The first noteworthy economic datapoint in a very busy week was the Chicago Fed’s National Activity Index (which gauges overall economic activity and is comprised of 85 monthly indicators) declined in April to its lowest level since the data series inception in 1967 at -16.7, down considerably from a reading of -5.0 in March. 

New Home Sales surprised to the upside in April, increasing by 0.6%.  However, sales are set to drop considerably with Pending Home Sales declining -21.8% in April and are down -33.8% from a year ago. 

Q1 GDP was revised from -4.8% to -5.0%.  Overall, the report showed that the economy was in better shape at the end of the quarter however, because inventories rose less than originally reported and personal consumption was marginally better.  Q2 is looking far worse; forecasted to decline by 30-40%, which would be the biggest historical quarterly decline.

Weekly Jobless Claims were reported at 2.1 million, bringing the total number over 40 million for the past 10 weeks, but continues to moderate while Continuing Claims fell from 24.9 to 21 million.  

April Durable Goods Orders declined significantly for the second consecutive month by -17.2% after declining by -16.6% in March.  “Core” orders excluding transportation and defense fell by a marginally better -5.8% 

The S&P 500 opened quickly out of the gates after the long holiday weekend, reaching an 11-week high on optimism relating to states reopening and new developments around potential Coronavirus treatments and vaccines.  President Trump’s announcement of a Friday press conference to address tensions with China slowed the rally, but the index closed up by 3.1% to 3,044 for the week.  The 10-Year U.S. Treasury Yield started the week at 0.66% reached a high of 0.73% on Wednesday, before closing almost unchanged at 0.65% 

Key economic data to be released next week includes several service and manufacturing indices, Factory Orders, and most importantly May Employment data.

Weekly Market Commentary

May 18th – May 22nd 

Housing Starts fell by -30% in April to an annualized level of 891k.  New Building Permits were weak during the month as well, down by -21% to 1,074k.  These are levels not seen since 2014.  

Despite an 18% drop in Existing Home Sales from March to April, demand is still out there for home purchases.  Low mortgage rates are keeping demand alive despite the challenges associated with showing homes and transacting during a period of restrictive social distancing orders.

Weekly Jobless Claims were reported at 2.4 million.  While the numbers continue to decline weekly, the cumulative number of total new claims over the past nine weeks is remarkable at over 38 million.  

The S&P 500 advanced by 3.2 this week to 2,955.  The NASDAQ closed at 9,324, higher by 3.4%.  As Q1 corporate earnings reporting season wraps up, investors are bracing for a second quarter with little to gauge expectations on.  Many companies have suspended forward guidance as business and social restrictions begin to ease at varied paces in each state throughout the country. 

The 10-Year U.S. Treasury rose to 0.74% during the week before closing back down to where it started at 0.63%.

Key economic data to be released in the holiday-shortened week includes an updated estimate of Q1 GDP, Durable Goods Orders, New Home Sales and a closely watched update on Weekly Jobless Claims.

We hope you enjoy a safe and healthy Memorial Day long weekend. 



Weekly Market Commentary

May 11th – May 15th 

This was a week of more of the same as the fallout from the Covid-19 virus continues to batter our economy.  On Tuesday, consumer prices for the month of April underwhelmed estimates as prices of goods and services not needed during a lockdown period fell.  Then on Wednesday, producer prices followed suit and dropped the most since 2015.  Don’t look for inflation to increase anytime soon as folks need to be out spending money in order to drive prices up.

Thursday brought more bad news on the employment situation as Weekly Jobless Claims came in at almost another three million.  The coronavirus total now stands at a staggering 36.5 million out of work.  Want the glass half-full view?  The weekly amount has now dropped for six straight weeks.   

The week closed out on Friday on an extra gloomy note when Retail Sales for April crushed estimates to the negative side by coming in at -16.4% when consensus called for -11.2%.  For some perspective, during the Great Recession of 2008-09, Retail Sales never dropped 5% at any point.  Clothing stores, electronics and appliances, home furnishings, sporting goods, and bars and restaurants all were large detractors.

Lastly, April’s Industrial Production numbers posted the worst drop in history.  Production came in at -11.2% while manufacturing dropped -13.7%.  Leading the way was the 70% drop in the production of cars, trucks, and auto parts.  The downturn was expected but the scale of the collapse in the industrial sector has been stunning.  The optimist will look for a rebound in these numbers as plants and factories begin to reopen.   

Equity markets declined slightly on the week.  Bad news about the possibility of an eventual virus resurgence weighed on investors’ minds, despite the administration’s rallying call to reopen businesses.  The Dow Jones Industrial Average was down -2.7% on the week; the broader S&P 500 dropped -2.3%; and the NASDAQ declined -1.2%.  In fixed income markets, the 10-Year U.S. Treasury rallied slightly with the yield ending the week at 0.64%.  Look for continued market volatility as states begin their re-opening process while managing new cases of the virus. 

Key economic data to be released next week includes Housing Starts, Building Permits, and Existing Home Sales; Markit Manufacturing and Services; and more Weekly Jobless Claims.  

We hope you continue to stay safe and healthy. 



Weekly Market Commentary

May 4th – May 8th 

The U.S. economy continues to be negatively impacted by the safety protocols enacted in response to the spread of Covid-19.  Nonfarm Payrolls declined by an unprecedented 20.5 million jobs in April.  The Unemployment Rate in the U.S. reached a staggering all-time high of 14.7%.  Labor Force Participation continued to pull back and now stands at 60%, while Average Hourly Earnings surged to 7.9% on a year-on-year basis, more than double the previously reported level.  

Weekly Unemployment Claims rose by 3.2 million, bringing the total since the pandemic-related lock down to over 33 million.  While the number has been moderating on a week-over-week basis, indicating layoffs may have peaked, the cumulative level is extreme.  

Factory Orders for March were weaker than already dour expectations, declining -10.3%.  Final Durable Goods Orders were lowered from the estimate released last week to -14.7%.  

Equity markets rose during the week despite the gloomy economic data.  Investors were feeling optimistic about the prospects of various states loosening restrictions on stay-at-home orders and allowing certain businesses to reopen with added safety protocols and capacity limitations.  (A link to a detailed communication on the current state-by-state reopening situation is available on our website homepage.)  The S&P 500 was higher by 3.5% for the week, closing at 2,929.  The NASDAQ advanced by an impressive 6.0% to 9,121.  Large Cap technology companies have led the rally off market lows and the index now stands back in positive territory for the calendar year.  

The yield on the bellwether 10-Year US Treasury finished the week close to where it started at 0.67% after trading in a range of 0.73-0.60%.  Short-term rates in the U.S. remain unappealing, although they are holding in positive territory, unlike other parts of the world.

Key economic data to be released next week includes consumer and producer price inflation, and Retail Sales - expected to have pulled back considerably as well.  

We hope you continue to stay safe and healthy. 



Weekly Market Commentary

April 27th – May 1st

States across the U.S. began to relax their stay-at-home measures this week allowing many businesses to re-open.  Positive news regarding trials of a Covid-19 treatment drug from Gilead gave hope to investors but a higher than expected jobless claim rate sent stocks tumbling in the later part of the week.  Despite losses on Thursday and Friday, all three indices finished flat for the week.  The S&P 500 finished at 2,830, a change of -0.2%.  The Nasdaq and DJIA finished at 8,604 and 23,723, respectively.

The FOMC met on Wednesday and kept the Fed Funds and Discount rates unchanged.  Fed Chairman Powell noted the effects of Covid-19 with the following statement, “The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world.  The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”  The 10-Year US Treasury yield finished the week at 0.63%, not much of a change from last week. 

Q1 GDP came in at -4.8%, a steeper decline than expected with consumer spending falling at a -7.6% pace.  Weakness in spending was attributable to vehicles and services, namely food, accommodations and recreation.  Personal income fell -2%.  The saving rate jumped to 13.1%, indicating people are uncertain about future income.  The March inflation reading fell 0.3% month-over-month bringing the year-over-year change in inflation to 1.3%, down from 1.8%.  Core Personal Consumption Expenditures (PCE excluding energy and food) declined -0.1% bringing the year-over-year change to 1.6%, also down from 1.8%.

The Weekly Jobless Claims rose another 3.8 million, bringing the total to 30 million over the last 6 weeks.  Consumer confidence dropped to a 6-year low of 86.9, by comparison, during the financial crisis of 2008, this measurement dipped into the 30s.  Pending Home Sales declined sharply by 20.8% in March indicating Existing Home Sales will decline in April and May, the height of buying season.  On the bright side, the purchase index of mortgage applications rose for the 2nd week in a row.  PMI Manufacturing ended the month of April at 36.1, noting specific weakness in foreign orders.  The ISM Manufacturing Index, which is a better measure of domestic manufacturing, came in at 41.5.  Regional manufacturing surveys in Dallas and Richmond both fell sharply, as expected. 

Looking ahead to next week, we will get a clearer picture of the employment situation.  We will also be watching for any fallout from businesses reopening and social distancing restrictions being relaxed in certain states. 


Weekly Market Commentary

April 20th – April 24th 

The world continues to suffer from both the physical and economic effects of COVID-19 and we are starting to see interruptions in commodities pricing and availability, both directly (food) and indirectly (energy) related to the virus.  Food chains are being impacted as large production facilities are being shut down in the wake of local virus outbreaks; and oil prices have plummeted as the supply far outweighs the demand due to worldwide stay-at-home regulations.  Producers are simply running out of room to store all the excess petroleum.  Grocery shelves are thinning out and oil prices are down over 25% on the week.  That said, there is evidence that the earliest hit areas of the country are starting to show signs of curve-flattening.

Congress passed round two of economic assistance known as the “Paycheck Protection Program and Health Care Enhancement Act” early in the week.  In summary, the $484 billion stimulus package provides $310 billion in small business assistance, $75 billion for hospitals, and $25 billion for testing (the key to reopening businesses generally agreed upon by state Governors).  Look for additional packages to come as the longer-term economic effects of the shut-down continue to be revealed.

In a lighter week of economic releases, New Home Sales and Existing Home Sales for March disappointed by coming in at -2.5% and -8.5% to their estimates respectively.  Initial Jobless Claims for last week came in at another 4.4 million bringing the total to an astounding 26.5 million in the past five weeks.  Both the manufacturing (36.9) and services (27.0) PMI levels for April came in well into contractionary territory (defined as less than 50); and Durable Goods orders followed suit by getting walloped at -14.4%.  A lone optimistic statistic was the ex-transportation figure which was -0.2% when consensus called for -5.0%.  Finally, the University of Michigan Consumer Sentiment not only beat the consensus but also the range, coming in at 71.8 indicating that despite the ravages of COVID-19, some optimism about the economy exists.  Next week, look for Q1 GDP, Pending Home Sales, Weekly Jobless Claims, Personal Income and Spending, and Core Inflation.         

In the markets, all three major equity indices were down slightly for the week.  The S&P500 dropped -1.3%, the Dow Jones Industrial Average dropped -1.9%, and the tech-heavy NASDAQ came in almost flat at -0.2%.  More importantly, volatility declined, an indication that the wild ride of stock activity a few weeks back gets further away in the rearview mirror.  In the fixed income markets, the bellwether 10-Year US Treasury rallied and finished the week with a yield of 0.60%.

We hope you continue to stay safe and healthy. 



Weekly Market Commentary

April 13th – April 17th 

The economic impact of shuttered businesses and consumers sheltering in place was evident in March data.  U.S. Retail Sales dropped -8.7%, the largest one month decline since the government began tracking the data in 1992.  Areas that were hit the hardest included sales from clothing (-50%), autos (-25%), and gasoline (-17%).  Retail Sales ex Autos and Gas painted a less dire picture falling -3.1%.  The top performing area, food and beverage (+25%) was largely driven by hoarders stocking up on essential items in preparation for the pandemic.  

The Weekly Jobless Claims number marked the third consecutive week the figure was in the millions.  Initial jobless claims totaled 5.25 million after the record setting 6.62 million posted last week.  To put these numbers into perspective, since June 2009 the U.S. economy added over 20 million jobs.  In just the last four weeks, first time unemployment claims have reached 22 million.

New U.S. Home Construction also posted declines in March with the index falling by the most since 1984.  Residential Housing Starts fell -22.3% to a 1.22 million annualized rate, which returned to an eight- month low and below the median forecast of 1.3 million.  New Building Permits, a proxy for future construction, fell -6.8% to a 1.35 million rate.

Weak economic data and corporate earnings did not slow the market’s recent strength.  Instead optimism regarding the prospects of a Covid-19 treatment (specifically positive results from Gilead’s Remdesivir drug), along with speculation that certain states may begin opening businesses back up soon, boosted markets late in the week.  All major indices finished up on the week with the S&P 500 finishing at 2,874, up by 3.0%.  Investors also showed an appetite for fixed income securities with strong demand sending the 10-Year U.S. Treasury prices higher and yield down by 7 basis points to 0.65%.

Key economic releases next week include Existing Home Sales, Markit PMI and Durable Goods Orders.



Weekly Market Commentary

April 6th – April 10th 

The Federal Reserve created a new lending facility to provide $2.3 Trillion in loans to small and mid-sized businesses.  It also loosened restrictions on the types of debt it would purchase in the open market to maintain ample market liquidity, including bonds issued by “fallen angels” (companies with credit ratings recently fallen below investment grade.)

Initial Jobless Claims in the first week of April were 6.6 million, following a revised 6.9 million the previous week.  There have been nearly 17 million new filings for unemployment in the U.S. since the start of the pandemic.  Massive layoffs of workers from shuttered businesses are expected to swell the unemployment rate in the U.S. well into double digits in the coming weeks.  

It is not surprising that the NFIB Small Business Optimism Index experienced the sharpest decline in decades in the March report.  The shuttering of small businesses has created worry and owners are scrambling to make decisions that are best for them and their employees based on various types of relief being made available through increased unemployment benefits or forgivable loans for those opting to continue to operate in some manner if possible.  

Inflation in the U.S. fell off in March along with declining oil prices.  The headline Consumer Price Index (CPI) reading declined -0.4% for the month to a 1.5% year-on-year level, down from the 2.3% prior reading.  Core CPI was -0.1% to a 2.1% annualized level, from 2.4%.

Equity markets rallied in the holiday-shortened trading week on news that the spread of the deadly Coronavirus was flattening in some areas and massive incremental stimulus measures being put in place.  The S&P 500 was higher by 12.1% to 2,789.  The NASDAQ advanced by 10.5% to 8,153.  The yield on the 10-Year U.S. Treasury note climbed by 13 basis points to 0.73% in the risk-on environment.  Investors were net sellers of U.S. Treasuries driving prices down, yields up.  

Key economic releases next week include Retail Sales, Initial Jobless Claims and Housing Starts.  



Weekly Market Commentary

March 30th – April 3rd 

Sobering projections from the White House regarding U.S. deaths related to COVID-19 turned markets negative earlier in the week.  Known global cases of the virus reached 1 million on Thursday.  Meanwhile oil markets had a wild week with crude oil prices jumping 40% in just minutes on Thursday after President Trump tweeted that oil producing nations would agree to reduce output by 10 million barrels or more.  Friday’s reports that OPEC+ will meet on Monday and that Russia is ready to cut production added another 8% to prices.  

Tuesday marked the end of the first quarter with the Dow suffering its worst performance in a quarter since 1987 and the S&P 500 since 2008.  After a few days of choppy trading, the S&P 500 finished the week at 2,488, a decline of -2.1%.  The DJIA and Nasdaq finished at 21,052 and 7,373, respectively.  The Fed remains diligent in their mission to quell volatility in the Treasury market.  This week they opened a temporary repo facility for foreign central banks.  The 10-Year Treasury yield finished the week at 0.60%, while the 2-Year finished at 0.23%.

Consumer Confidence fell but not as sharply as estimated.  February’s number was revised upwards to 132.6 from 130.7, while March came in at 120 vs the expected 110.  It’s important to note the cutoff date for the survey was March 19, when lay-offs were already happening across the country but before the 3.3 million initial jobless claims number was reported. 

Speaking of initial jobless claims, this week’s number came in at a staggering 6.7 million.  Last week’s number was also revised upward from 3.3 to 3.7 million. Economists are already expecting an upward revision to this week’s number based on reports that many people are having difficulty with online applications and systems.  Nonfarm payrolls fell by 701,000, while private payrolls fell by 713,000, both much higher than expected.  The bulk of lost jobs were in leisure and hospitality, mainly in food and beverage services.  The unemployment rate jumped up from 3.5% to 4.4% although early estimates suggest that figure is now likely closer to 10% given this week’s jobless claims. 

The March ISM manufacturing index fell from 50.1 to 49.1, which was better than the consensus of 44.5.  Under the surface, this result reflected a large increase in supplier delivery times, suggesting supply chain problems.  The ISM Non-manufacturing index remains in expansionary territory at 52.5 for the time being.

As a nation we’ve been warned the next couple weeks will be rough.  Headlines will be consumed by death tolls and medical supply needs.  Economic data set to release includes PPI and CPI numbers.  We will also be watching consumer sentiment, the weekly jobless report, and the FOMC meeting minutes.  
Stay healthy and stay home. 


Weekly Market Commentary

March 23rd – March 27th

A failure by the Senate to agree on the terms of an economic stimulus package over the weekend and into the start of the week kept stock market volatility levels elevated.  Stocks went on a roller coaster ride with a sell off on Monday followed by a meteoric rise in the next three sessions predicated on expectations of approval and rollout of a $2 Trillion stimulus package.  The bill was approved by the Senate on Thursday and House and President on Friday.  The back to back gains on Tuesday to Wednesday were astonishingly the first such consecutive stretch of positive trading sessions in five weeks.  A third day of gains on Thursday advanced the Dow by over 21% and S&P 500 by over 17% from the lows of Monday.  The rally ground to a halt on Friday on perhaps a case of “buy the rumor, sell the news”.  For the week the S&P 500 Index advanced an impressive 10.3% to 2,541.  It still stands -25.0% lower than the peak on February 19.  The NASDAQ advanced by 9.1% and Dow by 12.8% on the week.

The yield on the 10-Year US Treasury fluctuated along with on again, off again, risk appetite.  The bellwether Treasury traded in a range of 0.68-0.89%, settling at 0.69% in the final trading session.  While the shape of the Treasury yield curve has normalized with a 43 basis point spread between the 2-Year and 10-Year Treasuries, the front end of the curve was far from normal.  Both the 3-month and 6-month Treasury bill yields fell into negative territory this week before closing modestly positive.  Investors flocking to stable NAV money market funds from floating NAV funds has caused overwhelming demand for short-term Treasuries, driving yields through the zero lower bound.  

Weekly jobless claims spiked to 3.25 million last week, well ahead of estimates and the previous record of 695k from the early eighties.  The closure of non-essential businesses around the country has remarkably derailed the robust U.S. labor market in a matter of days. 

As expected, the Markit PMI Manufacturing Index showed a deterioration in U.S. manufacturing to a modest contraction level of 49.2.  The Services reading however, plummeted from over 50 to 39.1 as bars and restaurants around the country have closed and citizens heed warnings to remain at home.  

Consumer Confidence has turned markedly negative as a consequence.  The University of Michigan’s Consumer Sentiment Index slumped from 101.0 to 95.9 in the preliminary March survey and 89.1 in the final reading.  Job losses and a shuttering of retail America led to the largest monthly decline of the survey since 2008.

Next week all eyes will be on the mechanics of the stimulus package and ongoing spread of the virus.  We’ll be following the weekly jobless claims report as well as the monthly updated Nonfarm Payrolls including the headline Unemployment level.  We’ll also be paying attention to the broader consumer confidence data provided by the Conference Board.  


Weekly Market Commentary

March 16th – March 20th

Steep declines in the stock market resumed immediately in the first trading session of the week.  The Federal Government attempted to calm markets as multiple economic stimulus packages were rolled out, but continued news of the spread of the COVID-19 Coronavirus remained the driving news.  Despite a record-setting day of positive stock returns on Tuesday, U.S. stock indices finished the week again in bear market territory and wiped out all gains since the December 2018 correction.  The Dow Jones Industrial Average (DJIA) closed at 19,174, down -17.3% on the week.  The broader S&P500 Index finished at 2,305, down -15.0%.  The tech-heavy NASDAQ ended at 6,880, off by -12.6%. 

In the bond market, 10-Year US Treasuries rallied on Friday to finish the week basically flat with a yield of 0.85%.  The 2-Year Treasuries, however, did not perform similarly, causing the overall yield curve to steepen with the yield dropping -16 basis points to 0.34%.

As for commodities, crude oil was down 25% on the week as the Russians and Saudis continued to flood the markets with cheap oil in an effort to disrupt world competition.  Gold, generally a safe haven investment in times of financial turmoil and one you would expect to rise under these conditions, dropped -1.7% on the week and is basically flat for the year.

As mentioned earlier, the Federal Government has been hard at work combating what President Trump has called the “invisible enemy”.  On Sunday, the Federal Reserve decided not to wait two more days for their regularly scheduled March meeting, and slashed interest rates to near zero.  In other quantitative easing efforts, they also announced a $700 billion bond buying program designed to prop up liquidity in the markets.  Arrangements were also made with other central banks to make $50 billion in US dollar funding available.

The Trump Administration unlocked disaster funding by declaring a national emergency saying it would “unleash the full power of the federal government.”  The US Congress is working on legislation designed to help the country both medically and financially.  They passed a bill to cover testing and healthcare costs for underinsured citizens, extended paid leave benefits, and are working on a plan to provide direct payments to Americans under certain income thresholds.  They are committed to helping businesses by offering low cost loans to distressed industries and forgivable loans to small businesses. 

From an economic standpoint, weekly data generally followed the markets.  On Monday, the Empire State regional manufacturing index plummeted from +12.9 to -21.5 and Thursday brought similar pain in the Philly Fed manufacturing index.  Tuesday brought more distress as retail sales dropped -0.5% when pessimistic forecasts called for a +0.1%.  Also released Thursday was weekly jobless claims which increased to 281,000 despite a 220,000 forecast.  Look for this weekly figure to do nothing but balloon over the next few weeks as companies continue to feel the pain of national business shutdowns.  The only positive numbers for the week came from the housing market and can be attributed to timing as these are stats for February.

Next week, look for the virus to continue to potentially cause upheaval in the markets as scientists, the government, and the medical community continue to battle the fallout from COVID-19.  Economic data to be released includes Markit Manufacturing and Services PMIs, Durable and Capital Goods, Weekly Jobless Claims, Revised Q4 GDP, and Personal Income and Spending.

Stay home and stay healthy! 



Weekly Market Commentary

March 9th – March 13th 

On Monday we saw U.S. stocks sink -7.5%, the most since December 2008.  Energy companies were hit particularly hard with Russia and OPEC waging a full-blown oil price war.  Stocks rebounded modestly on Tuesday, but Thursday brought the worst day for stocks since 1987, driven by COVID-19 fears.  Reports on Friday that G-7 governments would coordinate virus responses and President Trump’s declaration of a national emergency eased investor fears for the time being.  The S&P 500 finished the day up 9.3% while the DJIA and Nasdaq were both up 9.4%.  Despite a positive day Friday, the S&P 500, DJIA and Nasdaq finished the week down -8.8%, -10.4%, -8.2%, respectively. 

Further optimism came in the form of the Federal Reserve announcing it was buying $37 billion of Treasury bonds across maturities in a bid to keep markets functioning normally.  Central banks around the world have also taken action including follow on rate cuts to bolster liquidity and mitigate global economic risk. 

CPI was little changed in February coming in at 0.1% for the month and 2.3% for the year.  Coronavirus effects in February appear to have been limited in the U.S. aside from some pre-buying of groceries indicated by a 0.5% jump in food prices. Producer prices fell sharply by -0.6%, mostly attributable to the 3.6% decline of energy prices.  The headline number was the largest drop in five years.  PPI less food and energy, declined -0.3%, the sharpest drop since September.  Year-on-year numbers contracted to 1.3% which is near a 3-year low. 

Key economic releases next week include retail sales and housing numbers.  Headlines concerning the Covid-19 pandemic will continue to dominant the news cycle. 



Weekly Market Commentary

March 2nd – March 6th  

March came in like a lion as the adage goes, in this case referring to equity market volatility rather than the weather.  Stock market levels spiked and retreated with major swings throughout the week.  After the final trading session, the S&P 500 Index managed a modest 0.6% gain for the week closing at 2,972.  The Nasdaq composite took a similarly volatile path to close only 0.1% higher at 8,575.

The Federal Reserve gave markets a surprise 50bp cut in the Fed Funds Rate on Tuesday, the first such inter-meeting cut since 2008.  While the market had priced in the move, the timing with only two weeks to go before the next official Fed meeting was unexpected.  The Fed Funds target rate now stands at 1.00-1.25%.  The Bank of Canada followed suit with a rate cut of its own.  Interest rates around the globe continued a dramatic slide through the week.  Remarkably, the 2-Year U.S. Treasury yield more than halved from the previous week closing at 0.52%.  The 10-Year UST yield continued to break through new record lows at 0.78%.  The 30-Year UST at 1.31% stands lower than the 2-Year yield only two weeks ago.  In a word, “astounding”.  Investors seeking the safety of U.S. Treasuries have bid up prices and driven rates lower than anyone anticipated.  Mortgage refinancing volume is shooting through the roof.  

273k new jobs were added in the U.S. in February and another 85k in upward revisions for the previous two months, well ahead of expectations.  Headline unemployment in the U.S. now stands at 3.5%, while year-on-year wage growth stands at 3.0%.  The very strong February labor market data, however, has been overshadowed by fears of the impact the Covid-19 virus may have on the next monthly report.

ISM Manufacturing edged lower in February, an additional data point indicating that growth in factory activity is slowing.  The forward-looking New Orders component slipped modestly into contraction territory (below 50) to 49.8.  Services measured by the ISM Non-manufacturing Index strengthened in February ahead of forecasts, although virus impacts are likely to weigh on the March release.  

The schedule of key economic releases next week is light, including CPI and PPI inflation and import/export prices.  Investors will continue to be focused on headlines relating to Covid-19 epidemic responses around the world.  



Weekly Market Commentary

February 24th – February 28th  

Equity markets sold off throughout the week with the S&P 500 Index moving into correction territory (a decline of greater than 10%).  In a rapid shift in sentiment from all-time highs reached only last week, the key U.S. equity index has declined rapidly over the last seven trading sessions on concerns relating to the spread of the Covid-19 Coronavirus.  A detailed review of recent market volatility relative to the outbreak of the virus can be read here.  https://www.plimothinvestmentadvisors.com/home/home/fiFiles/static/documents/20200225ClientUpdateonCoronavirus.pdf

The S&P 500 Index closed down on the week by -11.5% to 2,954.  The Nasdaq composite slid by -10.6% to 8,657.

New Home Sales beat expectations with 764k annualized for January and December’s figure revised up to 708k.  This month-over-month jump of 7.9% was partially fueled by unseasonably warm temperatures.  Pending Home Sales also increased by 5.2% on the month. 

The second revision of 4th quarter GDP held steady at 2.10%.  While the preliminary print of Durable Goods Orders for January was negative at -0.2%, it exceeded the -1.4% estimate.  The December Durable Goods Orders were also revised up to 2.9% from 2.4%. 

This week has seen unprecedented levels of demand for U.S. Treasuries.  As investors bid up safe haven bonds to move away from riskier assets, yields have declined to new lows.  The 30-Year U.S. Treasury shattered its previous all-time low yield of 1.89% last week by trading down to 1.64%, finally ending the week at 1.68%.  The 10-Year U.S. Treasury yield fell to 1.12% during trading and closed the week at 1.16%.  The 2-Year U.S. Treasury remarkably fell below 1%, ending the week at 0.93%.

Check back next week when key indicator releases focus around employment and manufacturing metrics.  These indicators include the Unemployment Rate, Nonfarm Payrolls, ISM Manufacturing and Non-Manufacturing, Factory Orders, Final Durable Goods Orders, and Capital Goods Orders.



Weekly Market Commentary

February 17th – February 21st 

Housing Starts were stronger than anticipated in January at a 1.57 million annualized rate, while December figures were revised higher as well.  A 1.55 million level on new Building Permits was the highest since 2007.  Existing Home Sales grew at a 5.46 million annualized pace through January.  Concerns of an economic slowdown were nowhere to be found in these reports.  

Producer Price Index (PPI) rose 0.5% in January and 2.1% on a year-on-year basis, ahead of expectations.  Services accounted for the vast majority of the increase while final demand goods inflation was modest.  The Core PPI (excluding food and energy) was higher by 1.7% on an annualized basis.

FOMC Meeting Minutes were released.  No incremental direction was provided on rates, expected to remain steady for the time being.  Comments relating to the gradual winding down of the temporary support of the repo market (through short-term Treasury purchases) drew some attention in an otherwise uneventful report. 

Accelerating fears relating to potential economic fallout from the spread of the Coronavirus drove investors to safe-haven assets.  The flight to quality into U.S. Treasuries drove yields lower, including a new all-time low for the yield on the 30-Year U.S. Treasury which reached a new record low of 1.89% on Friday before closing the session at 1.91%.  The 10-Year U.S. Treasury yield took a similar trajectory, closing the week lower by 11 basis points to 1.47%.  The spread between the 10-Year and 2-Year Treasuries remains modestly positive at 12 basis points while the 10-Year to 3-Month spread is back to being inverted at -8 basis points.

In a topsy-turvy week for stocks, new record highs were reached for major U.S. equity indices at midweek before a pullback in the final two trading sessions pulled markets back to the first negative week of the month.  The S&P 500 Index was lower by -1.3% at the final bell to 3,337.  The NASDAQ declined by -1.6% to 9,576.

Key economic reports next week include New Home Sales, Durable Goods Orders and a revised estimate of Q4 GDP.  



Weekly Market Commentary

February 10th – February 14th 

The headline Consumer Price Index (CPI) advanced by 0.1% in January and 2.5% on a year-on-year basis.  The annual figure drifted higher due to the roll-off of particularly low energy prices a year ago.  The Core CPI (excluding food and energy) was higher by 0.2% for the month and held steady at 2.3% over the past year.  The data continues to show a slow measured pace of inflation.  

Retail Sales in the U.S. rose 0.3% in January as anticipated but was revised lower by -0.1% for each of the last two months.  The Control Group (which factors directly into GDP) was flat for January, indicating a slow start to personal consumption in the new year.  

Fed Chairman Jerome Powell wooed markets (in advance of Valentine’s Day) into a further sense of complacency in his comments made before the House Financial Services Committee and Senate Banking Committee this week.  He described favorable labor markets and sound economic conditions in the U.S.  The Fed does not yet have a quantifiable assessment of the economic impact Covid-19 (Coronavirus) may have but will be assessing information (specifically noting supply chain disruptions) as it becomes available.  He also agreed with concerns about the current level of the fiscal deficit.  Despite having minimal room to use rate cuts as a mitigating tool in an economic downturn, the Chairman assured the Committees that other quantitative easing tools could be employed such as open market operations.  He indicated the reduction of T-bill purchases in the repo markets will take place at a slow and steady pace. 

The 10-Year U.S. Treasury yield closed the week 6 basis points higher at 1.59%.  Equity markets rose despite the ongoing spread of Coronavirus sited by market pundits as an unknown risk to economic growth and corporate profits. The S&P 500 Index advanced by 1.6% to 3,380.  The NASDAQ was higher by 2.2% to 9,731 as highflying technology stocks continue to lead market strength.  

Key economic reports in the holiday-shortened trading week next week include Housing Starts, Existing Home Sales, Producer Price inflation and the release of the latest FOMC meeting minutes.



Weekly Market Commentary

February 3rd – February 7th 

Concern over the Coronavirus continued this week with over 31,000 cases reported in China and the first cases of human-to-human transmission being confirmed in the US.  Other major headlines included the acquittal of President Trump and chaos at the Iowa Democratic caucuses where candidate Pete Buttigieg ended up on top, for now. 

Economically speaking, the PMI Manufacturing Index came in above expectations at 51.9.  The Services Index also beat consensus reported at 53.4. The Institute for Supply Management (ISM) manufacturing report was also positive at 50.9, well above the 48.7 expected.  This is the first time the index has been above 50 (expansionary territory) since July 2019.  Similarly, the ISM non-manufacturing index came in at 55.5.

ADP’s private payroll crushed expectations coming in at 291k vs consensus of 154k.  Non-farm payrolls increased by 225k after an upwardly revised 147k gain in December.  Private payrolls increased 206k vs consensus of 150k.  Average hourly earnings increased to 3.1% year over year and the participation rate climbed to 63.4% from 63.2%.  The unemployment rate edged up to 3.6%, still near a 50-year low. 

Other notable reports for the week were construction spending, which disappointed at -0.2% vs consensus of 0.5% and factory orders that surprised to the upside coming in at 1.8% vs consensus of 1.3%.

The yield on the 10-year Treasuries increased 7 basis points from a week ago, finishing the final session at 1.58%.  The 2-Year/10-Year U.S. Treasury spread narrowed to 18 basis points by the end of the week. 

Equity markets largely shrugged off Coronavirus concerns in the beginning of the week but with new reports of further infections, more deaths and more quarantines, the economic fallout is starting to materialize.  On Friday, U.S. equities halted a four-day rally, with the S&P 500 Index finishing the day 0.5% lower.  Overall, the Index finished positive for the week at 3,329.  

Key economic reports next week include CPI and PPI inflation reports and Retail Sales. 



Weekly Market Commentary

January 24th – January 31st

The final week of January picked up where it left off last week as concerns relating to the Coronavirus caused market instability worldwide.  The World Health Organization declared the epidemic, which has infected nearly 10,000, a global health emergency.  This rare designation will ultimately allow the agency to mobilize financial and political support to contain the outbreak.  Look for continued market volatility until containment plans show a slowing in the spread of the disease.  

On the economic front, the major releases of the week started with fourth quarter Gross Domestic Product (GDP).  In the first estimate of the quarter, GDP came in at an expected 2.1%.  When averaging this with the previous three quarters, GDP for the year 2019 was 2.3%.  For perspective, US GDP at 3-4% means the economy is firing on all cylinders.  This 2.3% is a good/not great scenario which ultimately shows a healthy, growing economy with some upside potential.  The Federal Open Market Committee acknowledged the current conditions by keeping interest rates unchanged at their January meeting this week as expected.

We received some disappointing housing news this week when New Home Sales came in at -4.9% from the previous and a -3.1% revision to last month.  Expectations were for a 1.5% increase.  Pending Home Sales also were down by -4.9% when the forecast was for 0.7%.  Despite these signs of softening, New Home Sales are still near post-recession highs amid lower borrowing costs.   

Durable Goods Orders beat estimates of 0.5% and came in at 2.4% thanks mainly to strength in transportation orders.  The Ex-Transportation Orders fell -0.1%.  New orders for non-defense capital goods fell the most in nine months as demand for machinery, metals and electrical equipment, and appliances/components declined.
There was firmness shown by the harder consumer statistics as Personal Income and Spending both came in basically flat to expectations at +0.2% and +0.3% respectively; while the softer, poll-based Consumer Confidence levels continue to defy expectations.  The Conference Board’s Consumer Confidence Index hit a five-month high at 131.6 and the University of Michigan’s Sentiment Index rose to 99.8 on expectations of a 99.1 print.  Time will tell if the confident American consumer’s behavior will trickle down to the harder consumer statistics such as Retail Sales and Personal Spending.    

Lastly, the Core PCE Deflator, a primary measure of inflation, continues to flummox the Fed by staying range-bound at 1.6%.  The Fed has long called for inflation of 2% but can’t quite pull the right levers to get there.  Look for the possibility of the Fed eventually changing its views on what the new norm for inflation might be going forward. 

In the fixed income world, 10-Year U.S. Treasuries rallied with the yield falling to 1.51% over the week, closing 17 basis points lower.  The yield curve ended the week neutral with the 2-Year/10-Year U.S. Treasury spread hovering at 20 basis points. 

Continued fears relating to the deadly Wuhan Coronavirus in China and the impeachment trial of President Trump dominated the headlines and pressured equity markets.  In contrast, generally positive earnings reports supported several of the mega-cap names such as Apple and Amazon.  The S&P 500 Index was lower on the week by -2.1% to 3,226.  The tech-heavy Nasdaq followed suit and declined -1.8% to 9,151 to close out the week. 

Key economic reports next week include the monthly employment report from the US Bureau of Labor Statistics, the Institute for Supply Management (ISM) manufacturing and non-manufacturing reports, factory orders, and construction spending.  



Weekly Market Commentary

January 20th – January 24th

World leaders and captains of industry jetted off to The World Economic Forum in Davos, Switzerland this week to (among other things) defend their views on protecting the environment.  Other key topics of discussion were central bank stimulus, negative interest rates and global trade.  

Existing Home Sales for December rose 3.6%, well ahead of the consensus estimate.  The year-on-year change was a stellar 10.8%.  Mortgage applications for home purchases remain at multi-year highs thanks to lower interest rates.  Rebounding housing data has become a bright spot for the U.S. economy.   

The U.S. Jobless Claims report continued to hold near multi-year lows in a tight labor market.  

The 10-Year U.S. Treasury yield pulled back throughout the week, closing lower by 14 basis points to 1.68%.  The yield curve experienced a meaningful flattening with the spread between the 2-Year and 10-Year U.S. Treasuries narrowing to 19 basis points.  The 3-Month – 10-Year Treasury spread narrowed even more to 15 basis points. 

Fears relating to the spread of the deadly Wuhan Coronavirus in China made headlines and mixed earnings reports heightened stock volatility.  After breaking through new highs once again at midweek, the S&P 500 Index was lower on the week by -1.0% to 3,295.  The Nasdaq took a similar path, declining -0.8% to 9,314 at the final bell. 

Key economic reports next week include the first estimate of Q4 GDP, Personal Consumption Expenditures (PCE) Inflation, Durable Goods Orders and New Home Sales.  The FOMC will meet as well, with no change to interest rate policy expected.  



Weekly Market Commentary

January 13th – January 17th

After nearly two years of negotiations, phase one of the U.S. China trade deal was signed by President Trump and Chinese Vice Premier Liu He on Wednesday.  The agreement included commitments from China to increase their level of U.S. imports by an additional $200 billion over the next two years and end their long-standing practice of forcing foreign companies to transfer technology to Chinese companies.  U.S. negotiators have set the stage for phase two stating that current tariffs will remain and will be used in further negotiations.  

December Retails Sales exceeded expectations with a late surge of holiday shopping, although negative revisions for the previous two months will weigh on the all-important personal consumption component of Q4 GDP.  

The Consumer Price Index (CPI) was higher by 0.2% in December, a tick behind the prior month reading.  The Core CPI (excluding food and energy) was higher by 0.1% in December and 2.3% over the past year.  The rising costs of health care expenses, apparel, new motor vehicles and vehicle insurance were more than offset by the pullback in costs of used vehicles, airline tickets and household furnishings.

Housing Starts jumped by 16.9% in December to a seasonally adjusted rate of 1.608 million units, the highest level since 2006.  Unseasonably mild weather may have factored in to some degree, but lower interest rates bringing new buyers to the table has also been a solid catalyst in the rebound of the housing sector.  

The yield on the bellwether 10-Year U.S. Treasury traded in a range of 1.86-1.78% before closing the week back where it started at 1.82%.  U.S. stocks continued to set new records throughout the week, led higher by technology companies.  The start of Q4 earnings season had some stellar results reported by key financial institutions.  The S&P 500 advanced 2% for the week to 3,329.  The NASDAQ was higher by 2.3% to 9,388.

In a light week for economic releases, key reports next week include Leading Indicators and Existing Home Sales.  



Weekly Market Commentary

January 6th – January 10th

Nonfarm Payrolls for December grew by 145k jobs, missing the consensus mark by 15k.  November payrolls were revised down as well by 10k, to a still very respectable level of 256k.  The headline (U3) Unemployment level remains at a fifty-year low of 3.5%.  Wage Growth at 2.9% on a year-on-year basis made headlines for “falling below” 3%.  While it should be expected that a tight labor market will lead to higher wage growth over time, the naysayers may have forgotten it was only in 2018 when 2.9% wage growth made headlines for concerns of heating up inflation.  It seems that 3-3.5% wage growth is the new “Goldilocks” level of neither too hot nor too cold.  

The service sector strengthened in the U.S. in December with the Markit PMI and ISM Non-Manufacturing Indices exceeding consensus estimates.  While the strength does not reverse the negative trend over the past several months, the service sectors continue to perform better than manufacturing measures.  Factory Orders followed suit with weaker manufacturing data reported last week and slowed as anticipated, -0.7% for November in line with consensus estimates.  

Consumer Confidence remains robust with the Bloomberg Consumer Comfort Index retracing new cycle highs.  Businesses continue to lag in sentiment surveys with a recent Deloitte survey of corporate CFOs continuing to decline, particularly on business spending and hiring plan metrics.  

After pulling back a week ago on risk-off sentiment, the 10-Year U.S. Treasury yield recovered some of the lost ground, settling modestly higher this week by 3 basis points at 1.82%.  

U.S. stocks started the week skittishly based on tensions with the middle east given missile strikes exchanged by the U.S. and Iran.  Equities rallied to new highs later in the week as tensions eased following the announcement of no new military action to be taken by the U.S.  The S&P 500 broke through new highs once again, then closed the week 1.3% higher to 3,265.  The NASDAQ index broke through new highs as well before retrenching modestly to close the week up by 1.8% to 9,178.  The technology-focused index remarkably has now doubled over the past five years.  

Key economic releases next week include the much anticipated December Retail Sales report, CPI and PPI inflation, Housing Starts and Building Permits.  


Weekly Market Commentary

December 30th – January 3rd

Happy New Year!  Advance readings for retail inventories for November came in at -0.7% while October was revised down by -0.2% to 0.1%.  Advance readings for wholesale inventories missed consensus of 0.2%, coming in at 0.0%.  Consumer Confidence came in below consensus of 128 at 126.5, but higher than the November reading of 125.5.  How this translates to holiday retail sales will be of particular interest. 

Pending home sales beat expectations with a reading of 1.2% for November.  This is a major improvement over October’s reading of -1.7%.  Construction spending for the month came in at 0.6% vs consensus of 0.3%.

The PMI Manufacturing Index was essentially in line with the consensus of 52.5 at 52.4.  The ISM Manufacturing index disappointed on Friday coming in at 47.2 for December vs. the consensus of 49.1 and the prior month’s reading of 48.1.  This slump has been partially attributed to fires and power cuts in California as well as Boeing’s decision to temporarily stop producing 737 Max jets.  This is the 6th straight month the index has missed expectations. 

On Tuesday, we closed out the year and decade.  Below is a look at how U.S. equity markets performed in 2019, as well as an annualized look at the past decade:

                    2019      10 Years (ann.) 

S&P 500     31.0%     13.4%

DJIA            25.3%     13.4%

Nasdaq       36.7%     16.1%

For the week, stocks finished moderately higher despite rising geopolitical tensions following an airstrike that killed an Iranian military leader.  The S&P 500 and Nasdaq indexes ended the week at 3,234 and 9,020, respectively.  The FOMC minutes released Friday afternoon didn’t do much to assuage investor fear.  Fed officials said their monetary policy was likely to remain appropriate “for a time” even amid what they saw as persistent downside risks.  10-Year U.S. Treasury yields finished lower for the week at 1.79%.

Key economic releases next week include Employment, Factory Orders and ISM Non-Manufacturing Index.  


Weekly Market Commentary

December 16th – December 20th

The week opened with the Purchasing Managers Index (PMI) Composite report and the results were mixed.  While both numbers are still well into expansionary territory, manufacturing came in at 52.5 vs. the consensus of 52.4 while services came up short at 52.2 vs. 52.3 consensus.  The regional Empire State Manufacturing Survey disappointed too as it came in at 3.5.  It bested the previous month’s 2.9 reading but missed the consensus 4.0 by a half a point. Tuesday was all about housing and industrial production.  Housing Starts and Building Permits for both single-family and multi-family houses came in above consensus at 3.2% and 1.4% respectively.  We next received some stellar production numbers with Industrial Production coming in at 1.1% (vs. consensus of 0.9%), manufacturing also hit 1.1% (vs. 0.7% consensus).  

On Thursday, the Philadelphia Fed General Business Conditions Index got slammed and came in at 0.3 vs. a consensus of 8.5, indicating no signs of a manufacturing rebound in the greater Philadelphia region.  Next, Existing Homes followed suit and came in at -1.7% month over month when expectations called for +1.5% and October reported +1.9%.  We are in the midst of an interesting housing environment where inventory continues to be a problem which, along with lower mortgage rates, has led to improving home-building activities.   JOLTS job openings came in at a strong 234,000 which was at the higher end of the consensus range.  Finally, on Friday the most important data point of the week was released.  The third estimate for Q3 GDP matched the consensus of 2.1% while real consumer spending came in at 3.2% vs. 2.8% consensus, indicating seasonal holiday strength.  Next up was PCE inflation and the results basically matched what economists were calling for and what has been a common story lately much to the Fed’s chagrin…namely steady but low inflation.  

Regarding interest rates, the yield on 10-year Treasuries saw-toothed its way to a week ending close of 1.92% after ending last week at 1.82%.  It hit a mid-week high of 1.95% early Thursday before settling back 3 bps.  The curve in general normalized (steepened) further with the 2s/10s spread going from 21 bps to 29 bps by week’s end. 

As for the equity markets, despite the turmoil in Washington, the three major U.S. stock market indexes finished the week at all-time highs.  The S&P 500 rose for a fourth consecutive week, advancing 1.7% to 3,221; the broader Dow Jones Industrial Average was up 1.1%; and the tech-heavy NASDAQ index had the strongest week of the three, up 2.2% to 8,925.

In a light, holiday-shortened upcoming week, key economic releases include New Home Sales and Durable Goods Orders.  

Warmest holiday wishes from everyone at Plimoth Investment Advisors!  The Weekly Market Commentary will return on January 3, 2020.  


Weekly Market Commentary

December 9th – December 13th

A preliminary trade deal between the U.S. and China was announced just days before new tariffs were scheduled to be imposed.  While numerous details remain to be determined the deal is expected to roll back some existing tariffs in addition halting the implementation of scheduled new ones on over $150 billion of Chinese good including smartphones, toys and electronics.  The Chinese agreed to incremental purchases of American agricultural products although the exact amount has not been officially announced.

The landslide election of UK Prime Minister Boris Johnson set the stage for a more certain exit path for Britain from the EU after an ongoing three-year debate.  The British pound and U.K. stocks rallied on the news.  

The Federal Open Market Committee (FOMC) met this week and held interest rates steady as expected.  The forward holding pattern on rates was substantiated as 13 of the 17 FOMC members expect rates to remain unchanged in 2020 from the updated dot plot forecasts.  

Inflation reports played into the view of a Fed on hold.  The Core Consumer Price Index (CPI) was reported at 2.3% on a year-on-year basis as expected.  The Core Producer Price Index (PPI) came in at 1.3% on a year-on-year basis, below the 1.7% consensus.  The growth in prices of wholesale goods as well as services slowed and freight costs stabilized from their recent slide.  

Retail Sales were weaker than anticipated in November, reported at 0.2% versus an estimated 0.5%.  The critical Control Group that factors directly into GDP was a paltry 0.1%. The weakest segment of the report was health and personal care products which retracted -1.1%.  Online sales (+0.8%), gasoline (+0.7%) and electronics (+0.7%) were the strongest segments.  

The yield on 10-year Treasuries took a wild ride at the end of the week given geopolitical headlines before settling within a couple basis points of where it started at 1.82%.  The bellwether Treasury traded in a range of 1.79-1.93% in the final two trading sessions of the week.  Added clarity on the Fed’s plans for short-term rates along with renewed optimism on a trade deal have helped to normalize the shape of the yield curve to a more normal positive slope. 

The S&P 500 rose for a third consecutive week, advancing 0.7% to 3,168.  Despite the decline in the basket of large technology “FAANG” stocks on the week, the tech-heavy NASDAQ index was modestly stronger than the broad market, up 0.9% to 8,734.

Key economic releases next week include Housing Starts and Building Permits, Existing Home Sales, PCE inflation and JOLTS job openings.


Weekly Market Commentary

December 2nd – December 6th

Christmas came early for the labor market despite a weak ADP report earlier in the week.  Nonfarm payrolls coming in at 266k for November, much stronger than expected.  September and October both saw upward revisions of 13k and 28k, respectively.  Average hourly earnings rose 0.2% on the month, which was less than the consensus of 0.3%, however October was revised upward from 0.2% to 0.4%.  The unemployment rate ticked down to 3.5% from 3.6%.

The PMI Manufacturing Index came in at 52.6 for November, well above the prior reading of 51.3 and the strongest improvement in the health of the manufacturing sector since April.  Strong new order growth rates and the fastest rise in employment since March contributed to the strength of November’s reading, however business confidence remained muted.  PMI Services came in at 51.6, in line with expectations. 

Conversely, the ISM manufacturing Index unexpectedly fell from 48.3 to 48.1 in November, despite the end of the GM strike boosting activity in the auto sector.  Weakness in new orders, backlog and employment led to the third straight month of contraction.  The ISM non-manufacturing index slipped from 54.7 to 53.9 for the month, primarily due to slower growth in business activity.  Factory Orders came in at an expected 0.3% for October. 

Markets reacted favorably to the employment news on Friday.  The S&P 500 recovered losses incurred earlier in the week to close +0.2% from where it started to 3,145.  The yield on 10-year Treasuries rose three basis points to 1.84% after trading in a range of 1.69-1.85% during the week.

Key economic releases next week include CPI and PPI Inflation readings and Retail Sales.  The FOMC holds their final meeting of 2019 next week with no rate changes anticipated.  


Weekly Market Commentary

November 25th – November 29th

Third Quarter Gross Domestic Product (GDP) was revised higher to 2.1% from 1.9% primarily due to an upward adjustment to inventories.  Growth in the level of goods and services produced in the United States was supported by robust Personal Consumption.  Business Fixed Investment has lagged given global trade tariff uncertainty.

Durable Goods Orders for October were reported ahead of consensus at 0.6% with Core Capital Goods at 1.2%, markedly higher than the 0.1% expected and -0.5% from the prior month.  

New Home Sales continued the trend of positive housing data with the latest report showing a 733k annualized pace, well ahead of the consensus estimate.  The prior monthly reading of 701k was also revised meaningfully higher to 738k.

Personal Income was flat in the month at 0%, below the 0.3% expected increase, but Consumer Spending remained in line with consensus estimates at 0.3% primarily due to electricity and gas consumption.  Inflation remains subdued as Personal Consumption Expenditures (PCE) were reported a tick below consensus at 1.3% and similarly the Core PCE at 1.6%.

The 10-Year U.S. Treasury yield traded in a range of 1.73-1.79% in the holiday-shortened trading week.  The bellwether Treasury yield returned to where it started the week to close at 1.77%.  The yield curve remains positively sloped between the key measures of spread between the 2-Year and 10-Year (17 basis points) and 3-Month and 10-Year (19 basis points).

The S&P 500 advanced by 1.0% on the week to close the abbreviated final trading session at 3,140 and capping a third consecutive month of gains for U.S. stocks.  The NASDAQ also had a particularly strong week, advancing 1.7% to 8,665.

Key economic releases next week include ISM and Markit Manufacturing, Factory Orders and the latest Employment report.  


Weekly Market Commentary

November 18th – November 22nd

The minutes from the latest FOMC meeting showed most Fed governors are in synch (by varying degrees) with Chairman Powell’s statement that a “material reassessment” of the Committee’s outlook would be needed to cut rates further.  The three preemptive cuts to the Fed Funds Rate in 2019 are viewed as sufficient to sustain economic growth, barring further escalation of a trade war with China.  There also seems to be unanimous consent among members that negative interest rates would not be an appropriate policy in the U.S.  Market participants now fully expect rates to hold steady for the remainder of the year and are currently pricing in (from the futures market) a 50% probability of only a single incremental rate cut in 2020.

Multiple October housing data reports showed continued improvement.  Building Permits grew at a 1.46mm annualized pace, the strongest since 2007.  Permits for the critical leading economic indicator of single-family homes reached a 12-year high.  Housing Starts were just shy of estimates at a 1.31mm annualized rate and equally strong within the single-family category.  Housing completions were also strong, up 1.26mm; a 10.3% rise that will provide immediate new inventory to the housing market.  Existing Home Sales were higher by 1.9% in the month to a 5.46mm annualized pace, a solid year-on-year gain of 4.6%.  A strong labor market combined with low mortgage financing rates have seemingly pulled the housing market out of its prolonged slump.  

The index of Leading Indicators continued a slow pull back, reported at -0.1% in October following -0.2% readings in each of the previous two months.  The weakness was driven primarily by manufacturing components.  

The 10-Year U.S. Treasury yield pulled back from the highs reached following the FOMC meeting.  The bellwether Treasury traded within a range of 1.85-1.71% before settling 6 basis points lower for the week closing the final session at 1.77%.  The yield curve flattened as the 2-Year UST was more stable throughout the week and closed modestly higher by 2 basis points to 1.63% shifting the 2-10 spread to 14 basis points.  

The S&P 500 ebbed and flowed through the week based on global trade speculation and the tail end of corporate earnings announcements.  By the final bell on Friday, the index was -0.3% lower from where it started to 3,110.  Investor complacency with a Fed seemingly on hold has led to lower levels of market volatility.

Key economic releases next week include a revised reading of Q3 GDP, Durable Goods Orders, New Home Sales and Personal Income and Outlays


Weekly Market Commentary

November 11th – November 15th

The holiday-shortened (bond trading) week in the U.S. opened with the release of CPI (Consumer Price Index) numbers.  It was a mixed report with an increase in headline inflation by 0.4% when the consensus called for 0.3%.  However, the Core CPI (ex-food and energy) came in at the consensus 0.2%.  The year-over-year change was 1.8%, modestly below the Fed’s target of 2.0%.  Core PPI (Producers Price Index) released later in the week was 1.6%, down from September’s unusually high 2.0%.  Economists are calling this “slack” in the economy just one of the factors for continued stimulative monetary policy.  

Retail Sales figures for October came in on Friday and the headline figure of 0.3% beat expectations by 0.1%, a number that hardly generates much enthusiasm heading into the holidays.  The Control Group figure, which feeds directly into Gross Domestic Product (GDP - the all-important measure of whether we are growing as an economy or not), came in slightly lower than expectations at 0.3%.  If this trend continues through the holidays, look for the Fed to possibly rationalize another rate cut or two next year.

The Empire State Manufacturing Survey came in well-below expectations and, despite being a regional figure, underscores the general manufacturing instability the country is currently experiencing.  A possible sign of more-concerning weakness in global demand?

Industrial Production figures for October were also released on Friday; and the news was not good.  Production dropped -0.8% with a consensus of -0.4% driven partially by the GM strike.  Manufacturing undercut expectations by -0.1%, coming in at -0.6%, again attributable to vehicle production during the strike.  Capacity utilization came in at 76.7% when the consensus called for 77.2%.  With the strike over, economists generally expect cautious improvement in all three figures going forward.

The 10-Year U.S. Treasury yield dropped sharply from 1.93% to 1.83% over the week while the 2s/10s spread, one of the best indicators of yield curve steepness, tightened by three basis points.   

Despite the mediocre economic news, all three major U.S. stock indices again broke through new highs, partially attributed to the optimism that there has been significant movement in a US/China trade agreement.  The S&P 500 finished the week up 0.9% to 3,120 and the tech-heavy NASDAQ finished up 0.8% to 8,540.

Key economic releases next week include Building Permits, Housing Starts, Existing Home Sales, and the Philly Fed Outlook as well as the release of the FOMC latest meeting minutes. 


Weekly Market Commentary

November 4th – November 8th 

The ISM Non-Manufacturing Index was reported higher than expected at 54.7 for October, allaying concerns that goods manufacturing weakness may carry over into the services sectors.  

Factory Orders fell 0.6% in September.  Inventories rose marginally by +0.3% while shipments pulled back by -0.2%

The 10-Year U.S. Treasury yield advanced to 1.93%.  The sale of U.S. Treasuries and shift into riskier assets drove the bellwether Treasury down in price and to the highest yield since July.  The rise of longer maturity Treasury yields added positive slope to the yield curve and reversed the curve inversion for the first time since November 2018.  The 10-Year spread over the 2-Year Treasury is back to a healthy 27 basis points and 38 basis points over the 3-Month Bill.  The Fed and market participants are now far closer to being on the same page than any other time this year.        

The risk-on shift into equities drove U.S. stock indices further into record territory.  Stronger than anticipated corporate earnings, a positive view of trade negotiations and a general sense that the U.S. economic cycle still has legs led investors into more cyclical positions and away from more defensive stocks like utilities and real estate.  The S&P 500 advanced by 0.9% on the week to close at 3,093.  The NASDAQ was higher by 1.1% to 8,475.     

The bond market will be closed on Monday in a holiday-shortened trading week, while the stock market will trade during regular hours on all five days.  Key economic releases next week include CPI and PPI inflation, Retail Sales and Industrial Production.  


Weekly Market Commentary

October 28th – November 1st

The first estimate of Q3 GDP exceeded expectations at 1.9%.  Consumer spending continues to be the key driver of economic growth.  Personal Consumption rose by 2.9% in the period.  Business Investment contracted further by -3.0%.

The Federal Open Market Committee (FOMC) reduced short-term interest rates by 0.25% as expected, the third cut thus far in the calendar year.  The Fed Funds Target Rate now stands at 1.5-1.75%.  Post announcement comments aimed for a neutral stance but reading between the lines of the written statement and Chairman remarks reveals a Fed looking to pause on further rate cuts.  The probability of a fourth cut in 2019 quickly dropped from over 50% to 25% after the release.  

Non-farm payrolls were reported higher than anticipated for October at 128k new jobs, despite a pullback from GM workers on strike during the month (-40k) and a reduction from temporary census workers (-20k).  An additional 95k jobs from an upward revision of the last two months of data also points to continued strength in the labor markets.  The Unemployment rate moved a tick higher to 3.6%, as did Labor Force Participation to 63.3%.  Wage Growth stands at a good but not great annual pace of 3%.  

International Trade in Goods fell sharply.  Exports dropped -1.6% in September, contracting -3.0% on a year-on-year basis.  Foods, feeds and beverages were the steepest fall off, -12.6% in the month.  Imports were lower by -2.3% on the month and -4.6% over the past year.  These are the types of trade-related data points the Fed is looking at when referring to global “economic headwinds”.  

The 10-Year U.S. Treasury yield pulled back along with shorter rates to close 8 basis points lower to 1.71.  Despite a modest flattening of the yield curve between the 2-Year and 10-Year maturities, markets seem to agree with the Fed outlook, maintaining positive slope in the curve.  

Amid a slew of corporate earnings reports and favorable economic data, the S&P 500 advanced by 1.5% on the week to close at 3,066.  The NASDAQ was higher by 1.7% t0 8,386.  

Key economic releases next week include Factory Orders, JOLTS jobs report and ISM Services Index.  


Weekly Market Commentary

October 21st – October 25th

Existing Home Sales were reported at a 5.38mm annualized pace for September.  The measure missed the mark relative to consensus expectations and was lower than the August reading revised up a tick to 5.50mm.  Despite the pullback, the trailing 3-month level of 5.433mm remains strong and a 3.9% increase from a year ago is the highest since March 2017.  New Home Sales were stronger at 701k, just ahead of estimates and following an above trend reading in August.  Home price appreciation continues to outpace wage growth with a national reading of home price appreciation up 4.6% on a year-on-year basis.  

Durable Goods Orders in September were weaker than anticipated at -1.1%.  Capital Goods orders declined for a second month as businesses hold investment decisions until more clarity is available on global tariff impacts.  Business Fixed Investment will likely be one of the weaker components of GDP for a second consecutive quarter.  

The 10-Year U.S. Treasury yield climbed further by 6 basis points this week to close at 1.80%.  The yield curve normalized further with the spread of the 10-Year bellwether Treasury now 17 basis points over the 2-Year and 13 over the 3-Month Bill.

The S&P 500 advanced 1.3% for the week to 3,023 with more positive than negative news in an abundance or corporate earnings reports.  The NASDAQ advanced by 1.9% to 8,243.

All eyes will be on the FOMC meeting next week.  We are expecting the market will get a pre-Halloween treat of an additional 25 basis point cut in the Fed Funds Rate.  Key economic releases next week include Employment, and Manufacturing Indices.   


Weekly Market Commentary

October 14th – October 18th

Retail Sales fell unexpectedly in September by -0.3% versus expectations of a positive 0.3%.  The critical Control Group (which factors into GDP measurement) however, was flat at 0% in September and unrevised at 0.3% for the prior month.  

The Fed Beige Book report for October had more sanguine language assessing U.S. economic growth than prior months, noting expansion at a “slight to modest pace”, with varying levels of business activity across the country.  Tight labor markets and softening manufacturing were recurring themes.  

Housing Starts advanced by an annual pace of 1.25mm in September.  The reading fell sort of consensus estimates but had some strength in the detail.  The strong August reading was revised modestly higher.  There was also a modest gain in single-family starts in September, a fifth consecutive increase.  Despite weakness in multi-family starts, the single-family data is more impactful per unit and will have a positive contribution to GDP.  September Building Permits exceeded expectations at 1.39mm, with a similar prior month upward revision and leadership by single-family.

Industrial Production pulled back more than expected in September after a strong August reading.  The -0.4% reading was pulled down by manufacturing (-0.5%).  Key to the weakness came from a -4.2% drop for motor vehicles, negatively impacted by the GM strike.  

The 10-Year U.S. Treasury yield closed the week a basis point higher from where it started at 1.74% after trading in a range of 1.67-1.79%.  The yield curve steepened modestly with the spread of the bellwether 10-Year over the 2-Year Treasury now at 16 basis points and 7 basis points over the 3-Month Bill.  The probability of a Fed rate cut at month end (priced in by the futures markets) jumped to 84% following the weaker than anticipated Retail Sales report.  

Q3 Earnings season kicked off in earnest this week with more initial good news than bad.  The S&P 500 advanced by 0.5% approaching a new record high at 2,986.  At 8,089, the NASDAQ was higher by 0.4% for the week.

Key economic releases next week include Existing and New Home Sales, Durable Goods Orders and Consumer Sentiment.  


Weekly Market Commentary 

October 7th – October 11th

Core Consumer Prices (CPI) remained very squarely in check in September, coming in a tick lower than expected on the month and holding at 2.4% on a year-on-year basis.  Producer Prices (PPI) pulled back by -0.3% in the month driven by trade, transport and warehousing services components.  The year-on-year Core PPI pulled back to 2.0% from 2.3%.

The August JOLTS reports showed job openings have moderated modestly at 7.05mm, a third monthly decline and below the 7.25mm survey estimate.  

Mortgage applications were once again reported at multi-year highs.  Refinancing activity rose as 30-year fixed mortgage rates approached 3-year lows.  Despite the lower rates available to borrowers, the spread for mortgage rates over the benchmark 10-Year U.S. Treasury has widened in a period of rapid decline for Treasury yields.  

The FOMC minutes showed that the Committee remains concerned about global growth and trade uncertainty, striking a marginally more dovish tone than the previous meeting.  

The 10-Year U.S. Treasury yield rose by 20 basis points to 1.73%.  A modest decline in the 3-Month yield allowed the yield curve to gain back some normalcy by the end of the week.  The 10-Year Treasury now has a positive 13 basis point spread to the to 2-Year Treasury and 5 basis points to the 3-Month Bill, reversing the inversion for the time being.  

Equity markets ebbed and flowed with the sentiment of trade headlines during the week.  The S&P 500 closed higher by 0.6% to 2,970.  The NASDAQ Index advanced by 0.9% to 8,057.

A number of Fed Governors take to the speaking circuit next week giving analysts more puzzle pieces on interest rate sentiment.  Key economic releases next week include Retail Sales, Housing Starts and Industrial Production.  


Weekly Market Commentary 

September 30th – October 4th

Non-farm payrolls were reported with 136k new jobs in September, while August was revised higher by 38k.  The Unemployment Rate dropped to a lower than expected 3.5%, the lowest level since 1969.  Despite the very positive labor market picture, Average Hourly Earnings increased only 2.9% from a year earlier, a consensus miss and slowest pace since July 2018.  

The ISM Manufacturing Index fell to a 10-year low of 47.8, missing across the board on component estimates with particular weakness in production, backlog and exports.  It is likely that the GM strike shutting down plants and vehicle deliveries factored into the shortfall.  The ISM Non-Manufacturing (Services) report was equally weak.  The fall to 52.6 is a three-year low.  The report raised concerns that the slowdown is not limited to factories in the U.S. 

Factory Orders in the U.S. for August edged lower as well, down by -0.1%.  The report was well off the prior reading of 1.4%, but ahead of the -0.6% estimate.  In conjunction with the lower than expected Core Capital Goods report, data is pointing toward slowed business investment as the trade war drags on weighing on manufacturing production.  

The 10-Year U.S. Treasury yield pulled back during the week in a flight to quality.  The bellwether Treasury closed the final session off by 16 basis points to 1.51%.  It now stands at 12 basis points higher than the 2-Year Treasury Note which pulled back sharply as well, while still inverted at a -18 basis point spread to the 3-Month Bill.

Negative headlines on U.S. manufacturing along with weak data overseas and more drama out of Washington weighed on investor confidence through the week before favorable employment data sparked a turn of sentiment in the final trading session.  The S&P 500 closed off by -0.3% to 2,952.  The NASDAQ eked out a 0.5% gain to 7,982.      

Key economic releases next week include Consumer and Producer Inflation, the JOLTS jobs report and Import/Export Prices.  



Weekly Market Commentary 

September 23rd – September 27th

Durable Goods Orders in August were stronger than expected at the headline level (0.2% and 0.5% excluding transportation), but weakness in Core Capital Goods at -0.2% and prior month revision from 0.4% to 0.0% weighed down the report.  The Capital Goods details raised concerns of further slowing in business fixed investment in the third quarter and slowing global growth carrying over to U.S. factories.  Computers and electronic products along with communications equipment were the weakest segments.

Consumer Confidence measured by the Conference Board pulled back in the latest reading but remains elevated relative to historical levels.  The gap between survey participants’ view of current conditions relative to future expectations widened, typically indicative of a late phase of an economic cycle.  Based on the frequent negative headlines relating to slowing global growth, the ratio is not particularly surprising.  

New Home Sales topped the consensus range at a 713k annualized pace in August driven by strong new single-family home sales.  Combined with a sharp upward revision to the July figure, the 3-month average moved to 703k, the best reading since 2007.  Mortgage purchase applications for this time of year remain at multi-year highs in the favorable rate environment for borrowers.

The final estimate of Q2 GDP was steady at a 2.0% annualized pace.  Consumer Spending remains the key driver at 4.6%.

The 10-Year U.S. Treasury yield declined by 4 basis points on the week, closing at 1.68%.  The yield curve inversion of the 3-Month to 10-Year Treasuries persists at -11 basis points, with the 2-Year to 10-Year spread modestly positive at 4 basis points.

The S&P 500 pulled back for a second week, down by -1.0% at the final bell to 2,961.  The NASDAQ Index declined -2.2% to 7,939.  News out of Washington of a Presidential impeachment inquiry took center stage in the headlines and gave investors pause.  

Key economic releases next week include ISM and PMI Manufacturing and Services Indices and Employment data.  


Weekly Market Commentary 

September 16th – September 20th

The Federal Open Market Committee (FOMC) cut the Fed Funds Rate by 25 basis points as expected to a target range now back at 1.75-2.00%.  Committee members were divided on the move with 2 voting to stand pat and 1 to cut by 50 basis points.  The “dot plot” of further rate moves going forward paints a cloudy picture at best with a broad divergence of opinion between those who feel no further cuts are necessary this year and those in different camps on 25-50 basis points of incremental cuts in 2019.  Fed Chairman Powell delivered measured remarks following the announcement remaining non-committal on future policy.

Industrial Production in August surprised to the upside at 0.6% relative to a consensus survey of 0.2%.  The report is the strongest of the year and takes the edge off concerns raised by weaker ISM manufacturing data out over the past two months.  

Housing Starts (1,364k) and Building Permits (1,419k) in August were both higher than expected.  Existing Home Sales did an about face as well with the highest reading in 17 months at a +2.6% annualized pace of 5.42 million home sales.  

The Fed injected billions of dollars in liquidity into short-term money markets in response to a spike in overnight rates, the first such move in 10 years.  The market operation is slated to take place until October 10 to keep overnight repo rates below the Fed Funds upper target band.  The 10-Year U.S. Treasury yield traded within a broad range of 1.90-1.72% closing at 1.72%.  The yield curve flattened with the 2-Year and 10-Year Treasury spread now at 5 basis points.  

News of a drone attack on Saudi Arabia oil facility heightened volatility in oil prices and stocks early in the week.  Further slowing in economic data out of China raised concerns about global growth as well.  The S&P 500 closed the week modestly lower by -0.5% to 2,991.  The NASDAQ was off by -0.7% to 8,117.

Key economic releases next week include a final estimate of Q2 GDP, Durable Goods, and Personal Income and Outlays.  


Weekly Market Commentary

September 9th – September 13th

Sales excluding autos and gasoline were weaker than anticipated; however, the critical Control Group (excluding food services, building materials, autos and gas) which factors into GDP growth was right in line with estimates at 0.3%.  The headline reading was also revised up a tick to 0.8% from July.  Retail Sales in August exceeded forecasts at 0.4% versus a consensus estimate of 0.2% with a lift from strong auto sales.

Core Producer Prices (PPI) were modestly higher than anticipated in the month as well  This brings the year-on-year reading a tenth higher to 2.4%.  The Core Consumer Price Index (CPI), which excludes weaker food and energy prices, rose by 0.3% in August for a third consecutive month, ahead of expectations.

The precipitous fall in rates earlier in the month is serving as a positive catalyst to the sluggish housing sector.  The average conventional 30-year mortgage rate fell to 3.82% this week leading to a strong 9% year-on-year increase in purchase applications.

The European Central Bank (ECB) cut deposit rates as expected and restarted the bond buying program of 20 billion EUR per month.  With a promise of holding rates at or lower than the new level until signs of robust inflation appear, pundits broke out the “QE Infinity” label once again signifying accommodative quantitative easing expected out of Europe for the foreseeable future. 

The 2-Year and 10-Year Treasury spread remains in positive territory at a healthier 10 basis points.  The yield up – price down movement in longer maturity Treasuries over the past eight trading days is beginning to normalize the shape of the yield curve.  The 10-Year U.S. Treasury yield rose during the week by 35 basis points to 1.90%.

Easier talk on tariffs and agricultural purchases out of China and the U.S. struck a positive tone for equity investors.  The S&P 500 advanced once again through the 3,000 level, ending the week ahead by 1.0% at 3,007 and nearing a new high.  The DOW advanced through the 27,000 level as well, up by 1.6% to 27,219 and the NASDAQ by 0.9% to 8,176 with some of the technology stocks coming under pressure late in the week due to added regulatory scrutiny.

In addition to a much anticipated FOMC meeting with an expected rate cut, important economic releases next week include Housing Starts, Existing Home Sales and Industrial Production. 


Weekly Market Commentary

September 2nd – September 6th

The closely watched August jobs report came in below expectations at 130k versus the 163k consensus estimate and the prior two month’s reports were revised down by a collective 17k.  The pullback comes even though the government added approximately 30k new temporary census worker jobs.  The unemployment rate remains at 3.7%.  The consumer got a modest boost to their wallets with wage growth a tick over expectations at 3.2% and the prior month revised up from 3.2 to 3.3%.  The data is supportive of the expectation of a rate cut in the upcoming meeting but is rather unlikely to have influenced Chairman Powell’s remarks at the economic outlook summit in Zurich Switzerland later in the day. 

U.S. manufacturing slowed further with another key measure, the ISM Manufacturing report, falling into contraction (a sub-50 reading) for the first time since 2016.  The key components of New Orders, Production and Employment all fell to 40-handle levels and New Export Orders at 43.3 is the lowest since 2009 and points to trade concerns hampering manufacturing.  The services industries measured by the ISM Non-manufacturing Index easily beat expectations however at 56.4, ahead of the 53.7 July reading.  The Business Activity Index advanced by eight points to 61.5, although similar to goods manufacturing, services exports were weak. 

The 10-Year U.S. Treasury yield ticked up in the holiday shortened trading week trading in a wide range of 1.44% to 1.60% before settling back at 1.55% to close the final session.  The spread between the 2-Year and 10-Year Treasuries shifted back into positive territory by 2 basis points.  The S&P 500 and NASDAQ indices advanced on the week by 1.8% to 2,978 and 8,103 respectively.

Important economic releases next week include the JOLTS jobs report, Retail Sales as well as CPI and PPI inflation. 


Weekly Market Commentary

August 26th – August 30th

Q2 GDP growth was revised down modestly to 2.0% from 2.1%, but there was more good news than bad as the critical component of personal consumption rose from 4.3% to 4.7%.  This is the highest reported consumer spending level since 2014.  Backed by a strong labor market, consumers did their part to maintain the longest economic expansion in history.  Business investment, net exports and inventories weighed on the revision.  A pull back in inventories bodes well however for third quarter manufacturing.

Amid all the negative headlines on trade wars and economic growth, consumer confidence was well ahead of expectations in August after an equally stellar July.  Sentiment on current situation reached a 19-year high, with forward expectations paring back modestly.  Personal Consumption Expenditures (PCE) rose by 0.2% in July.  On a year-on-year basis this key measure of inflation advanced 1.4% and the Core reading by 1.6%, both in line with the prior month and consensus expectations.

Durable Goods Orders in July exceeded consensus estimates led by a 49% jump in civilian aircraft orders.  Total orders increased 2.1% while the Ex-Transportation reading contracted by -0.4%.  Core Capital Goods Orders (non-defense and aircraft) were positive at 0.4%. 

The 10-Year U.S. Treasury yield slid further during the week closing at 1.50%.  The negative spread between the 2-Year and 10-Year Treasuries widened out to a level not seen since 2007 before ending the final trading session inverted by just over one basis point.

Renewed hope for progress on the trade front between the U.S. and China (after both sides reigned in retaliatory tariff threat rhetoric) reinvigorated the stock market.  The S&P 500 snapped a four-week losing streak to close higher by 2.7% to 2,926.  The NASDAQ advanced by 2.5% to 7,962.

Important economic releases in the holiday-shortened trading week next week include Manufacturing Indices, Factory Orders and Employment


Weekly Market Commentary

August 19th – August 23rd

Existing Home Sales exceeded expectations, coming in at 5.42mm, a 2.5% increase from last month’s reading, which was revised upward to 5.29mm.  The New Home Sales report was mostly positive despite coming in slightly below estimates at 635k vs. 645k.  The prior month saw a sharp upward revision from 646k to 728k.  July also saw a rise in in supply, up 1.2% to 337,000.  The housing market has been stop and go over the past six months but an increase in supply coupled with low mortgage rates could be a positive catalysts moving forward.

FOMC minutes were released on Wednesday.  There was a slight change in language from last month's FOMC press conference.  The 25 basis-point cut which was labeled a "mid-cycle policy adjustment" in the press conference, was described in the minutes as a "recalibration" of policy.  Either way, there was no mention of further rate cuts which weighed on equity markets.  Chairman Powell seemingly doubled down on this sentiment during his speech in Jackson Hole on Friday signaling that the Fed “will act as appropriate” to keep the economic expansion going but wasn’t clear on when further cuts would be coming.

U.S. rates had another rough week.  The 10-Year U.S. Treasury yield fell 9 bp on Friday to 1.523%.  The 2-Year yield closed at 1.528%, modestly above the 10-Year yield, inverting the curve again this week and further stoking recession concerns.

Retaliatory tariffs announced by China followed by a series of Trump tweets sent the Dow tumbling -2.37% to 25,630.  The S&P 500 finished the week at 2,847, down -2.6% while the NASDAQ Index ended the week at 7,751, off by -3.0%.

Important economic releases next week include Durable Goods Orders, a revised estimate of Q2 GDP and Personal Income.


Weekly Market Commentary

August 12th – August 16th

The Consumer Price Index (CPI) rose 0.3% in July, in line with expectations.  The Core CPI (excluding the volatile food and energy segments) reading was also 0.3%, modestly ahead of expectations.  Computer prices (+2.8%) and airline fares (+2.3%) were key components of the increase.  Marginally higher Core CPI at 2.2% on a year-on-year basis may be due to temporary tariff-related price increases.

Retail Sales bucked the dour mood on economic growth with July readings ahead of expectations.  The monthly change of 0.7% was more than twice the consensus estimate.  Excluding the weaker auto segment the reading was 1.0%, as was the important Control Group reading tied directly to GDP. 

Nonfarm Productivity of 2.3% for the second quarter was also a positive surprise.  The -0.4% manufacturing component of the latest Industrial Production report however, highlighted continued slowing in factories.  Construction supplies were a key driver of weakness and motor vehicle production edged lower. 

Housing Starts in July declined by 4% at a 1.19 mm annualized pace missed the mark by a significant amount and continue to point to weakness.  Although single family homes increased on a year-on-year basis, the report showed a sharp falloff in multi-family structures.  The more forward-looking Building Permits reading was ahead of expectations at 1.33 mm, partially making up for the sharp decline in the prior month. 

U.S. rates continued to plummet during the week.  The 30-Year Treasury reached a new record low yield at 1.98%.  The 10-Year U.S. Treasury yield fell to an eye popping low of 1.48% before ending the week at 1.55%.  The yield curve between the 2-Year and 10-Year Treasuries inverted for the first time since before the 2008 financial crisis, closing the week modestly positive at 6 basis points.  An inversion in this segment of the yield curve has historically predated a recession by 12-18 months so the financial press likely broke records on use of the “R” word in single week. 

The S&P 500 Index volatility spiked with each push and pull on global trade comments out of Washington and Beijing, including a dramatic mid-week 3% single day drop…the worst of the year.  A rise in the final trading session led the index to a change of 1.0% for the week to 2,888.  The NASDAQ Index ended the week at 7,895, off by -0.8%.

Notable economic releases next week include Existing and New Home Sales along with a release of the FOMC minutes from the latest meeting. 



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