-Darren Leavitt, CFA
It was another extremely busy week for Wall Street. Investors received the latest statement from the Fed Reserve Open Market Committee that appeared to be more dovish than anticipated. Additionally, there were a number of corporate catalysts last week along with a full suite of global economic data that on the margin reinforced some concerns on global growth. Technically, the S&P 500 extended last week’s highs and booked a new high for the year only to see those gains dissipate and close again at the key level of 2800. The S&P 500 lost -0.8% on the week while the Dow was off -1.3%, the NASDAQ shed -0.6% and the Russell 2000 underperformed with a loss of -3.1%. Global bonds were well bid last week. The 2-year note lost 12 basis points for the week and closed with a yield of 2.32%. The 10-year closed down 13 basis points for the week to yield 2.46%. Of note, the 3- month US T-bill and the 10-year bond yield spread inverted for a brief period last week and the German 10-year yield went into negative territory, something that has not been seen since 2016. Oil increased by 0.8% for the week with WTI closing at 59.01 a barrel. Gold was also up for the week, gaining just over $13 to close at 1308/oz. There were no changes to our models last week.
As anticipated, the Fed left the Fed Funds rate range unchanged at 2.25% to 2.5%. However, the FOMC dot plots did change from their December outlook on rates. The committee no longer sees 2 hikes in 2019 but instead forecast the need for no rate hike this year. Additionally, they only indicate 1 hike in 2020. The Fed also indicated that it planned to end its balance sheet runoff at the end of September 2019. The Chairman, J Powell, remarked that he thinks the policy rate and the US economy are in a “good place” right now. The announcement and the subsequent statement put a bid into the equity and treasury markets. A more dovish Fed has been a good thing for the markets over the last 10 years, but their most recent stance has some wondering about the state of the economy and the effectiveness of the “Fed Put.” As I mentioned earlier, the 3 Month-T-bill and 10 Year Bond yield spread inverted last week- the San Francisco Reserve bank thinks this spread measure has been the most reliable among different term spreads in predicting an impending recession. The flatting curve hit financials hard last week with Regional banks underperforming their money center counterparts as they arguably relay more heavily on the net interest margin. The S&P 500 financial sector lost 4.9% for the week.
Growth concerns were reinforced with some of the global economic data that was reported last week. Japan and South Korea export data were weak, but concerns were catalyzed on Friday with weak manufacturing data out of the Eurozone. Eurozone PMI missed the estimate of 49.5 and came in at 47.6. Similarly, German PMI continued to contract and came in at 44.7 versus the February reading of 47.6. The French PMI indicated that manufacturing there was now contracting as well with a reading of 49.8. The data set intensified the bid into government bonds on Friday and sent the German 10-year yield into negative territory. Some corporate news seemed to collaborate the weak data. Fed Ex missed estimates and lowered their full-year 19 guidance. Fed EX Management indicated a weak global environment with trade uncertainty as one of the culprits. Nike met expectations for the quarter but also indicated slower growth going forward. On the other hand, Micron had a great quarter and suggested that the Semis cycle may bottom in the next quarter- they provided an encouraging outlook for a sector- which has continued to be on fire. Separately and of note, was the announcement by Biogen that they would halt phase 3 studies of its Alzheimer’s drug- this company is a pretty influential component within the healthcare indices. Also of note, is the action in the IPO area of the market. We saw a very good IPO last week in Levi- the company priced its offering at $17 and it closed up nicely at $22.65 for the day. Lyft and Uber are close to coming public too. Lyft appears to be having no problem with investor interest with an over 20 billion dollar valuation.
Technically the market looked like it was going to break out last week. The S&P 500 made a new high on the back of the more dovish Fed statement. However, the market could not hold those gains as the weaker economic data on Friday knocked the S&P back to a key level of 2800. The next few trading sessions could be critical for the market technically.
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