Monday, April 8, 2019

Week In Review | Apr 8 2019

Spencer Joyce, CFA
Author position
Vice President | Markets Analyst

The Investment Strategy & Research team of Hilliard Lyons, A Baird Company, supports you and your Wealth Advisor with investment guidance to help you separate meaningful news from idle noise via timely market commentary.

Stocks Strong to Open Second Quarter

  • Equities were higher across the globe last week. The S&P 500 gained 2.1%, which marks the index’s fifth weekly gain of >2% in 2019. International stocks kept up with domestic issues in what was a flattish week for the US dollar. Sector moves reflected a traditional risk-on appetite, with Utilities and Staples underperforming alongside higher interest rates. Oil prices quietly continued to strengthen.
  • The Hilliard Lyons View: Optimism toward a trade pact with China seemed to permeate markets last week, which supports the idea that global growth may have troughed in Q1. Higher interest rates and firm commodity prices fit with this view as well. A key gauge of Chinese manufacturing data swung back to expansion territory last week, and a couple of key data points in the US support the narrative that our economy remains resilient.

The US economy added 196,000 jobs in March.

March Jobs Report

  • The US economy added 196,000 jobs in March, well above the 33,000 jobs added in February. Wages grew 3.2% year over year; the unemployment rate last month held steady at 3.8%.
  • The Hilliard Lyons View: March Jobs data from Friday was perhaps the single most important data point last week. The report seemed to indicate that paltry hiring in February was an anomaly, and additions last month exceeded the consensus expectation. Somewhat more nuanced, wage growth of 3.2% combats the idea that wage inflation is a major concern.

Rates Rise; Some of the Curve Remains Inverted

  • Treasury yields rose across the curve last week. Yields on medium-term notes ranging from 2-yr to 7-yr remain below very short-term maturities (an inverted relationship). That said, the 3-month/10-year inversion that spooked markets a couple of weeks ago is now back to a normal (non-inverted) relationship. The 2-yr/10-yr relationship has still not inverted this market cycle. High yield credit spreads (i.e., the amount above Treasury yields) reached their lowest level since November. Investment grade credit spreads remain near recent lows as well.
  • The Hilliard Lyons View: Interest rate moves over the last week or so have been constructive. We remain mindful of inverted relationships, but remind investors that these occurrences are poor tools for timing markets. We believe the recent strength in corporate credit during a period of angst surrounding global growth has been somewhat underappreciated.

A Look Ahead

  • The Hilliard Lyons View: The big banks get earnings season rolling later this week, with JP Morgan, PNC and Wells Fargo all set to report results on Friday. In total, just six members of the S&P 500 report this week, but the number jumps to 49 next week. The economic data docket is relatively light this week, with inflation (Wednesday and Thursday) and consumer confidence (Friday) representing data of interest. Brexit will likely demand the market’s attention later this week. Absent some sort of agreement or extension, the UK is set to leave the European Union on Friday, April 12.

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, A Baird Company, 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. Diversification 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.