Monday, April 1, 2019

Week In Review | Apr 1 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.

US Assets Rally to Close Strong Q1

  • The US dollar index gained just under 1% in what was a strong week for US stocks and bonds. Emerging and developed market international stocks slipped last week. The S&P 500 gained 1.2%, pushing the large-cap index’s Q1 gain to 13.7%, its best quarter since 2009. Sector moves were mixed, with areas of outperformance in both cyclical and defensive groups.
  • The Hilliard Lyons View: We interpret much of last week’s trading as a response to the S&P 500’s 2% decline on Friday, March 22. Financials rebounded last week, as did Industrials and Materials; both were laggards the week prior. A stronger dollar and little progress with respect to the major geopolitical narratives (i.e., trade war, Brexit) likely served as a headwind for international stocks. Broadly, an uptick in volatility is likely reflective of investors grappling with inversion of the yield curve. Some moves last week could have been positioning for quarter-end.

Q1’19 was the S&P 500’s best quarter this decade.

Lyft IPO Lifts Off

  • Ride-hailing service Lyft went public on Friday. Nasdaq-listed LYFT shares closed at $78.29, which was 8.7% above the initial offering price of $72. Lyft’s debut followed the recent reintroduction of jean-maker Levi Strauss to public markets, and marks the first of what could be several high profile tech IPOs in 2019. Other companies that could go public this year include: Uber, Pinterest, Postmates, Slack, Airbnb, and Palantir.
  • The Hilliard Lyons View: A strong flow of initial public offerings (IPOs) is suggestive of healthy current financial market conditions. That said, ‘hot’ IPOs can be extremely volatile, and as with all equities, great companies can sometimes be poor investments if investors pay too high of a price. All new investments should fit within an individual’s holistic financial plan.

Rates Dip; Some of the Curve Remains Inverted

  • Treasury yield dipped again last week, which followed declines in the immediate aftermath of the Fed meeting on March 20. The closely watched 2/10 relationship is normal (10-yr yields above 2-yr), but 3-month yields remain above 10-year yields (inverted).
  • The Hilliard Lyons View: Inversions are a "caution light" for the economy, but they are a poor timing tool for financial markets. We note that the first inversion since the Great Recession occurred during the best quarter for stocks since 2009 (Q1’19).

A Look Ahead

  • The Hilliard Lyons View: March 31 marked quarter-end for most of the S&P 500, but it will be several weeks before earnings season begins in earnest. Walgreens and Constellation Brands highlight a sparse week of reports. As we enter a new month however, the flow of economic data will be heavy this week and could move markets. March Jobs data (due Friday) is an important report as the market looks for a bounce back from an uncharacteristically weak February figure. Closely watched survey results from the Institute for Supply Management (ISM) are due out Monday (manufacturing) and Wednesday (services).

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.