Monday, March 18, 2019

Week In Review | Mar 18 2019

Ross Mayfield, CFA
Author position
Correspondent Research 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.

Stocks Reverse Losses from 2019’s Worst Week

  • Stocks rallied strongly last week; the S&P 500 gained nearly 3%, on track for its best Q1 this millennium. The Technology sector led the way, posting a ~5% gain, while Industrials were the laggard, pulled down by Boeing's continued struggles. WTI crude oil traded near $60, hitting a 4-mo high.
  • The Hilliard Lyons View: The S&P 500 crossed 2800 last week, a key level watched by many. The index has approached and/or briefly breached this point now five times since the market began its descent last October; on the four previous occasions, stocks reversed almost immediately. While we believe technical analysis is only part of the story when evaluating markets, 2800 seems to represent a key psychological level to investors. Crossing 2800 and consolidating higher may be a bullish signal in the near-term.

The S&P 500 gained nearly 3%, on track for its best Q1 this millennium.

Brexit Fatigue

  • Britain’s government held Brexit-related votes on three consecutive days last week in an attempt to gain clarity ahead of the March 29th deadline. First, Parliament voted down PM May’s Brexit deal (for a second time). Subsequently, the UK voted both against a no-deal Brexit and for May to request a deadline extension from the EU. Amazingly, almost every option that was available day one is still on the table.
  • The Hilliard Lyons View: Fatigue is the only appropriate word as the ugly divorce moves forward. Luckily, clarity may be just two weeks away, when the UK must legally exit the EU on March 29th (barring an extension). However, should an extension be approved by the EU, it’s back to square one. Among the possibilities are a no-deal Brexit, a vote of no confidence, and even a second referendum. It might be amusing if the world’s 6th largest economy and one of America’s largest trade partners weren’t at stake. The British Pound has been especially volatile lately on the uncertainty.

Bonds Rise Again

  • Bonds gained as yields dropped for the third straight week. The 2/10 spread remains narrow, but positive.
  • The Hilliard Lyons View: Though mid-curve yields remain near one-yr lows, we still believe in fixed income as an important diversifier. Over the past six months, the Barclays Aggregate Index has outperformed the S&P 500 by over 3%.

A Look Ahead

  • The Hilliard Lyons View: This week, the FOMC will meet for the second time of 2019. The federal funds rate is expected to be left unchanged, but the decision and subsequent Fed statement will be dissected thoroughly for any hint of hawkishness. Existing home sales, PMIs, and the Philadelphia Manufacturing Index round out the economic calendar. In earnings, Tencent and Nike lead the way. Finally, as has been the case for going on years, we continue to closely monitor the ever-evolving US-China trade & Brexit situations.

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.