During the past week, movement in the equity markets was largely dictated by the release of the minutes from last month’s Federal Reserve meeting. Two major themes stood out with the first being the gradual reduction of the Fed’s massive $4.5 trillion balance sheet. The second is that certain members of the central bank have begun voicing concerns over current stock valuations, noting that prices across domestic and emerging markets equities are quite high. Other economic data showed that the U.S. trade deficit declined roughly 10% to $43.6 billion in February, beating expectations by more than $1 billion. On Tuesday of this past week, the ADP employment report showed that U.S. private employers added 263,000 jobs in March which is well above economists’ expectations of 185,000. In light of the positive economic data, domestic markets fell this week. The NASDAQ composite and S&P 500 both fell by 0.57% and 0.30%, respectively. The Dow Jones Industrial Average fell 0.03%.
Global currencies were also in focus in the week as investors digested the news coming out of the U.S. The dollar fell slightly on the release of the Fed minutes, while the yen increased on inflationary concerns. The UK’s Purchasing Managers’ Index (PMI), a leading indicator of the economic health in the manufacturing sector, experienced its third straight month of declines, affecting both British stocks and the pound negatively. Most recently, the UK Parliamentary Commission has requested that Prime Minister May provide details of a contingency plan if no deal can be reached with the European Union (EU). Other economic releases included the German PMI which was strong at 58.3, almost hitting a six-year high. Indicators are signaling that the European Central Bank’s stimulus plan has been beneficial to the region and participating nations could continue to see growth.
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:
Based on the minutes of the March meeting, the Fed is planning on reducing its $4.5 trillion balance sheet. The committee is still deciding the pace, timing and level of activity at which this reduction will occur. To help guide their decision, the committee will be relying on economic data releases throughout the rest of the year. In spite of this, the central bank’s outlook for interest rates has not changed with two more hikes expected by year end.
U.S. Speaker of the House, Paul Ryan, informed the public that the House, Senate and White House are not in agreement on the current tax reform proposal. According to Speaker Ryan, repealing and replacing the Affordable Health Care Act will be an easier project than instituting tax reform.
UK manufacturers reported another month of declining production growth, barely missing expectations. Despite the narrow drop, there is concern that a lack of momentum going into the second quarter will continue to impact the economy.
A slump in Chinese imports helped shrink America’s trade deficit to $43.6 billion in March from $48.2 billion in January. While economists anticipated this drop, expectations only forecasted a fall to $44.5 billion. We would note that these movements in January and February largely stem from the timing of the Chinese New Year. Imports from China tend to surge before the prolonged holiday period and subside afterward.
Fun Story of the Week
With the Masters beginning this past Thursday, this week’s “Fun Story” is a timely one. As many know, the champion of the Masters is awarded the illustrious green jacket, worn by so many other great golfers. While winning the Masters may be the most public and prestigious way to get one of these jackets, there is actually a secondary market if you have some (or a lot of) spare change. Ryan Carey, co-founder of Green Jacket Auctions, said that he has sold close to a dozen jackets since 2006. Supply is quite limited as only members of Augusta National and winners of the Masters can own one. Even so, one of Carey’s most impressive auctions was the sale of Horton Smith’s jacket (1934 Masters Winner; first year of tournament) for $682,000 in 2013.
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 CWM, 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.