Monday, March 11, 2019

Week In Review | Mar 11 2019

Spencer Joyce, CFA
Author position
Vice President | Markets Analyst

Hilliard Lyons’ Investment Strategy & Research team is dedicated to supporting you and your Wealth Advisor. We provide investment guidance and help you separate meaningful news from idle noise via timely market commentary.

Domestic Stocks Post Softest Week of 2019

  • Stocks around the world finished lower last week, consolidating gains from what was a strong January-February rally. The S&P 500 shed about 2%; US small-caps fell closer to 5%. International stocks were a bit more resilient despite an extremely strong week for the US dollar. Bonds proved valuable last week as the Barclays Agg posted its best week since Dec. ‘18.
  • The Hilliard Lyons View: We are not surprised to see the equity rally pause last week. A disappointing February Jobs report on Friday continued a string of mixed economic data, which to some extent is likely influenced by the now-concluded government shutdown. Markets seem to be pricing in a speedy conclusion to our trade war with China, with contrarians perhaps harvesting some profits. Equities made investors lots of money in January and February, but last week is a reminder why we stay diversified.

Bonds proved valuable last week as the Barclays Aggregate posted its best week since December.

Data, Micro and Macro

  • The S&P 500 grew profits by 22% and sales by 9% in 2018. Growth in Q4 was a bit slower, with sales and earnings up 6% and 12%, respectively. Both periods are strong in a historical context. The US economy added 20k jobs in February after averaging >200k in each of the past four months. This nonetheless marked a 101st consecutive month of growth. February data for the services sector from the Institute for Supply Management showed improvement, as did Retail Sales for January.
  • The Hilliard Lyons View: The Jobs number last month was a shock, but a reduced unemployment rate and strong wage growth still indicate strong demand for workers. Company results in 2018 were very good, in our view. Tax cuts were a boon for profits, but robust sales growth stands on its own. Effects of the government shutdown should fade over the next few months, but trade uncertainty is likely delaying some level of business spending.

Rates Dip as Markets turn Volatile

  • Rates fell last week, as investors bid for US Treasuries. The spread between 2-yr and 10-yr Treasury rates remained positive.
  • The Hilliard Lyons View: The February Jobs surprise probably helped Treasuries rally. A strong week for bonds while global equities faded underscores the importance of diversification. We are pleased to see 10-yr rates remain above 2-yr rates.

A Look Ahead

  • The Hilliard Lyons View: Only six S&P 500 companies report results this week, but the list includes Tech titans Adobe, Broadcom and Oracle. The economic data docket is full again however, due in part to reports that were delayed by the government shutdown. Retail Sales figures for January were out Monday morning; we are pleased to see a positive print after a surprise decline in December. Other data points that could garner the market’s attention this week include: inflation estimates (Tues. & Wed.), durable goods data (Wed.), and consumer sentiment (Fri.). Another Brexit vote in Parliament could impact markets.

Key Definitions

  • S&P 500 – index composed of ~500 large-cap US equities listed on the NYSE or NASDAQ.
  • Russell 2000 Index – index composed of ~2000 small-cap US companies.
  • MSCI EAFE – index composed of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East. This index does not include US or Canadian companies.
  • MSCI EM - index composed of large and mid-cap securities across 24 emerging markets.
  • Bclys US Agg – (Bloomberg Barclays US Aggregate Total Return Bond Index, Unhedged) total return bond index composed of taxable, dollar-denominated debt.
  • Oil--WTI – represents West Texas Intermediate Crude Oil, a grade of light crude oil used as the underlying commodity in many indices and futures contracts.
  • Oil--Brent – represents Brent Crude Oil, a grade of light crude from the North Sea used as a global benchmark price.
  • IG Spread – (Investment Grade Spread, Bloomberg Barclays USD Liquid IG Corp Average OAS) represents the yield difference between an index of investment-grade rated bonds and a spot Treasury bond curve.
  • HY Spread – (High Yield Spread, Bloomberg Barclays US Corporate HY Average OAS) represents the yield difference between an index of below investment-grade rated bonds and a spot Treasury bond curve.

Important Disclosures

Each client’s investment needs, risk tolerance, and goals are different. This newsletter is not meant to be advice for any specific investor. Nothing in it should be construed as an offer to sell, or a solicitation of an offer to buy, any securities. This should not be used as the sole basis for an investment decision. Any opinions or estimates are subject to change without notice. For information about how any of this information applies to your personal financial situation, please contact your Wealth Advisor.

Past performance is not a guarantee of future results.

Although the information provided to you in this newsletter was obtained or compiled from sources that we believe are reliable, J.J.B. Hilliard, W.L. Lyons, LLC cannot, and does not, guarantee that the information or data is accurate, timely, valid, or complete.

All investing involves risk, including the possible loss of principal. You should carefully consider investment objectives, risks, charges, and expenses of any investment before investing. Diversi-fication and asset allocation do not guarantee a profit or guarantee against a loss.

Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. The bond market is also volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect can be more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks.