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Weekly eNews: March 11, 2019

Financial Market Update

Welcome to the StrategicPoint Financial Market Update — a market and economic overview of what occurred last week and what’s up for this week. Please find our market commentary and most recent Blog posts in our StrategicPoint of View®.

Last Week

The benchmark indexes listed here suffered their worst showing last week since December. Hardest hit was the Russell 2000, which fell over 4.0%. Unsettling global economic news had investors scrambling for cover from stocks. The prospects of a trade deal with China suddenly took a turn for the worse after several weeks of promising rhetoric. Adding to the turmoil was last Thursday’s decision by the European Central Bank to offer additional stimulus to spur economic activityin the European Union. In addition, Chinese exports fell and U.S. job growth was marginal at best in February. All of these factors led to a fear that the economy may be slowing. While stock prices dropped, long-term bond prices rose, as did the price of gold.

Oil prices inched higher last week, closing at $55.99 per barrel by late Friday, up from the prior week’s closing price of $55.74 per barrel. The price of gold (COMEX) climbed higher last week, closing at $1,298.70 by last Friday evening, up from the prior week’s price of $1,294.20. The national average retail regular gasoline price was $2.422 per gallon on March 4, 2019, $0.032 higher than the prior week’s price but $0.138 less than a year ago.

S&P 500: 2743 (down 2.16% for the week and up 9.42% for the year)
NASDAQ: 7408 (down 2.46% for the week and up 11.65% for the year)
Dow: 25450 (down 2.21% for the week and up 9.10% for the year)
US Treasury 10yr: 2.63% (from 2.75% last week)
Crude Oil (April): $56.07 (from $55.80 last week)
Gold (April): $1,299.30 (from $1,299.20 last week)
USD/Euro: $1.1223 (from $1.1368 last week)

StrategicPoint of View®: 2019 Market Update

We thought we would bring you up to date on our outlook for the markets. While December unnerved many investors, the beginning of 2019 brought renewed confidence. Since the beginning of March, however, equity markets have started to roll over. Why might this downturn be happening and where could the markets be headed?

Where we are not worried:

  • The markets dramatically oversold in December and then rebounded with similar speed. Neither the disconcerting sell-off nor the enthusiastic rally was probably warranted, which means the recent downturn is unlikely to be a major concern. Prices could fall again – perhaps to some point between the December 24th low and the March 3rd recent high. Alternatively, the markets could become choppy – moving sideways as volatility’s up and down movements are compressed. Without deep economic concerns, however, we continue to believe that any downside volatility will primarily be short-term noise.
  • Ned Davis Research says fund managers, margin buyers and hedge funds have been slow to embrace the rally. They could be waiting for a pullback to buy in, which would temper any sell-off.
  • The underlying economy is decent, although growth is decelerating as the tax and spending stimulus of 2018 fades. The labor markets are strong, inflation is low, and the Fed has reasserted a dovish stance – declaring a temporary moratorium on interest rate increases. That takes the risk of a Fed misstep off the table for now and allows the economy to gain momentum.
  • Predictions of a recession in the next twelve months are low. When markets correct or experience a bear market during a non-recessionary period, they usually rebound faster than during a sustained downturn in the economy.

What we are watching:

The global slowdown. While the US doesn’t usually import recessions from abroad, our economic growth can be impacted by a slowdown overseas. Global economic production and growth figures are still quite weak. Tack on the Brexit conundrum and unresolved trade tensions with China, and there is enough uncertainty to put business leaders on hold in terms of their capital spending. This leads to earnings concerns amongst investors. Analysts are more optimistic, with some saying the rest of the world should show signs of recovery the second half of the year, which could spill over to US markets.  However, enthusiasm is tempered and influenced by three caveats:

The dollar: If the US economy weakens and we see stronger growth elsewhere, the dollar will likely fall. That is actually good news, since a weaker dollar helps businesses export their goods overseas and increases the affordability of debt denominated in dollars. However, if the US continues to be the best economy, then the dollar will likely get stronger, putting downward pressure on economies both here and abroad. We will be following the currency markets closely.

The yield curve: Economists like to say that recessions are almost always preceded by inversions of the yield curve.   That happens when short term interest rates are higher than long term interest rates. This usually occurs when the Federal Reserve is raising rates (as they have done 9 times since December 2015) and long-term bond holders are becoming more pessimistic about the economy. Since, the Federal Reserve has pressed the pause button on raising rates, a sustained inverted yield curve is unlikely in the near future. We will be watching for any signs that the Fed feels the need to become hawkish again, a move that could spark a meaningful sell-off in equity markets.

Politics: We have traditionally believed that politics is not a big factor in market moves beyond headline risk. But politics – here and abroad – is dominating the news and can impact business and consumer confidence. Since economic growth is based on consumer and business spending, we are keeping an eye on what happens in Washington DC, London, and Beijing along with other nations’ capitals for political action that could spill over into the economy and influence investor thinking.

So what does this mean for the markets? We would like to believe it means more uncertainty without the need to panic.  On the one hand, we feel the current economic recovery could possibly last a few more years. At the same time, we recognize that the next recession is on the horizon, we just aren’t sure when.

In the midst of all of this, we will be keeping a close eye on the factors that provide us with the data we need to guide your portfolios through these times of uncertainty.

Betsey A. Purinton, CFP®
Chief Investment Officer

This Week

The employment figures for February are out this week. Over 300,000 new jobs were added in January, so a reduction is expected for February. Wage inflation has been tepid for the most part, rising a little over 3.0% in 2018.

 

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*Past performance is not indicative of future results. Indices are unmanaged and you cannot directly invest in them. The Nasdaq Composite Index measures all NASDAQ U.S. and non-U.S. based common stocks listed on the Nasdaq Stock Market. The S&P 500 index is based on the average performance of 500 industrial stocks monitored by Standard and Poor’s. The data referred to above was taken from sources believed to be reliable. StrategicPoint Investment Advisors has not verified such data and no representation or warranty, expressed or implied, is made by StrategicPoint Investment Advisors.

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

The information contained in this post is not intended as investment, tax or legal advice. StrategicPoint Investment Advisors assumes no responsibility for any action or inaction resulting from the contents herein. Third party content does not reflect the view of the firm or of our parent company, Focus Financial Partners. LLC and is not reviewed for completeness or accuracy. It is provided for ease of reference.

Parts of this report were prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019. Part of this content contributed by Forefield, Inc.