Monday, April 22, 2019

Week In Review | Apr 22 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.

Muted Week for US Markets

  • US stocks fell last week while international indexes finished higher despite a strong week for the US dollar. Fixed income and commodity markets were little changed. The range of returns by sector was wide despite a shortened week of trading. Industrials continued their YTD rally, while Healthcare lagged. All US markets were closed to observe Good Friday.
  • The Hilliard Lyons View: We struggle somewhat to pin down a prevailing market narrative from last week, aside from the Healthcare debate (detailed below). International equity markets still lag domestic markets on a YTD basis, but they have been steady/positive since early March.

Healthcare posted its worst week of 2019 at -4.4%.

Healthcare Headache

  • The Healthcare sector fell 4.4% last week, its worst week since Christmas 2018 when it fell 6.7% (but still outperformed the S&P 500). The sector has now declined 0.2% on a total return basis year-to-date, making it the only S&P 500 sector to lose money for investors this year.
  • The Hilliard Lyons View: The sharp decline(s) seem to be driven by fear that the operational status quo for the sector could change, as Q1 earnings season is off to a very strong start for the group. Democratic ‘Medicare-for-all’ proposals and Republican attempts to repeal/dismantle Obamacare both carry potentially negative implications for the sector. And of course both parties are looking for ways to lower prescription drug prices. All that said, demographic trends for Healthcare are still constructive, and any legislation will be difficult to enact in the current environment. Healthcare remains an important and reasonable exposure in a diversified portfolio.

Yields and Credit Stable

  • Bond markets were relatively calm last week. Treasury yields were effectively unchanged; credit spreads widened slightly.
  • The Hilliard Lyons View: We would generally prefer to see rates ticking a bit higher, but after a volatile couple of quarters for the Fed narrative (and interest rates in general), we are fine with a calm week in fixed income markets.

A Look Ahead

  • The Hilliard Lyons View: Earnings season kicks into high gear this week with 154 members of the S&P 500 set to report. Noteworthy companies include: Next Era Energy, Ford, Starbucks, Coca-Cola, Procter & Gamble, Verizon, AT&T, Texas Instruments, Microsoft, Facebook, Amazon, Exxon Mobil, and Visa. There is also a heavy emphasis on the Industrials sector, which has been a leader YTD. Reports from that sector include: United Technologies, 3M, UPS, Caterpillar, Boeing, Lockheed Martin, Raytheon, Northrup Grumman, General Dynamics and Southwest Airlines. The advance estimate for Q1’19 GDP growth is due out Friday, which likely highlights the week of economic data. News is breaking this morning that the Trump administration will not renew waivers on Iranian oil, which could have implications for energy markets this week.

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.