The week of March 20 began with fluctuation in the markets, as investors signaled signs of uncertainty in President Trump’s ability to pass legislation. Though market volatility has been at a historically low point, trends changed this past week when the NASDAQ Composite, S&P 500 and the DJIA fell 1.22%, 1.44% and 1.52%, respectively. Additionally, markets took their biggest hit since October 11, 2016 last Tuesday, with the S&P 500 and the DJIA falling 1.24%, and 1.14%, respectively. The NASDAQ Composite was the clear underperformer, falling 1.82% on March 21. The Federal Reserve’s conservative rate guidance from last week, coupled with the recent healthcare bill debacle, has left investors struggling for confidence in the current bull trend. To give context to the optimism and the stakes involved, $131 billion has flowed into U.S. equity ETF’s in the first two months of this year, which is higher than the amount for past four years combined ($120bn). Though the optimism can be justified, other economic data disappointed during the week. The Purchasing Manager’s Index (PMI), a measure of the health of the manufacturing sector, has shown that the U.S. economy has “shifted down a gear” in the month of March with a reading of 53.2 and output hitting a six-month low. Despite the fall in the indices, they were still above the “no growth value” of 50, an indication that the sector is still expanding. While there was a silver lining with the PMIs, first quarter GDP growth came in at 1.7%, down from 1.9% in the fourth quarter of 2016.
Overseas, the UK continues to report resilient economic numbers with February retail sales growing by 1.4%, month-over-month. This is compared to the 0.4% expected by the markets. Inflation numbers also came in higher, though the MSCI United Kingdom Index fell .19% and the pound rallied on the news of strong retail numbers. Even so, subdued wages and higher inflation are expected to have a negative impact in the coming months. Outside of Britain, the MSCI Europe captured gains as Marine Le Pen’s party was seen losing in the most recent poll result. On the commodity side, oil continues to trade below $50 per barrel despite OPEC’s production cuts. The cartel’s members and its allies were scheduled to meet Sunday to decide on extending the cuts, even though U.S. inventories continue to grow.
What are we reading?
Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links:
U.S. crude stockpiles continue to rise at record rates. Consequently, the increase in supply has placed downward pressure on oil prices, which have dropped back below $50 a barrel this year. The lower oil prices will continue to place downward pressure on the Energy sector’s earnings.
U.K. retail sales came in better-than-forecasted for February. However, domestic demand is likely to come under more pressure as import costs rise with the devalued pound, thus squeezing households with higher food and fuel prices. While retail sales rose 1.4% from January, underlying figures show volumes are falling at the fastest pace in seven years.
Officials from the Federal Reserve spent most of their time giving speeches scheduled throughout the week. During the assorted speeches, markets were hoping to decode the Fed’s guidance on rates, however, no new information surfaced. The Federal Reserve’s tone has shifted away from its original hawkish language but still expecting two more hikes this year.
Fun Story of the Week
No one likes goodbyes. Unfortunately, for the many of us that enjoy the board game, Monopoly, the parent company, Hasbro, has decided to retire some of their much-loved pieces. We are talking of course about the boot, wheelbarrow and thimble game pieces. While Monopoly has weathered many generations, Hasbro has decided that it was time to make a change. With an excess of 4.3 million people from 146 countries voting on these changes, there were a variety of options for the company to choose from. In the end, Hasbro had to narrow down the 64 potential options to just three, ranging from a winking emoji to a clunky 80’s cell phone. While neither of these options will ever pass “GO” and collect $200, a Tyrannosaurus Rex, a penguin and a duck will be the new pieces. Jonathan Berkowitz had this to say about the change, “While I’m sad to see the iconic thimble, boot, and wheelbarrow tokens go, it will be fun to have some new, fan-sourced tokens in the mix,” he said. “Personally, I’ve always especially liked the boot token, but I’m excited to move onto the T. Rex.”
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI EUROPE INDEX
The MSCI Europe Index captures large- and mid-cap companies across 15 developed markets countries in Europe.
MSCI UNITED KINGDOM INDEX
The MSCI United Kingdom Index is designed to measure the performance of the large and mid-cap segments of the UK market. With 109 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in the UK.