Weekly Market Commentary March 18, 2019

The S&P 500 rebounded 2.9% after last week’s decline as positive sentiment overcame a number of mildly negative economic reports and continued uncertainty regarding trade. The global MSCI ACWI shed 2.1%. The Bloomberg BarCap Aggregate Bond Index climbed 0.7%.

The British Parliament cast several key votes on Brexit, its effort to leave the European Union on good terms. The results left the issue as muddled as ever. U.S. industrial production rose just 0.1%, suppressed by the second straight monthly decline in manufacturing activity. Chinese industrial production also continued to post lackluster results.

The Federal Reserve meets this week to discuss interest rate policy. No changes are expected, but investors will be keenly focused on how seriously the Fed is treating the economic slowdown.

Key Points for the Week

  • In spite of minimal positive news, markets rallied last week.
  • Brexit continues to be a point of risk for the market.
  • Brexit-like risks are real but often resolved.

Market Analysis

Britain’s exit from the European Union, known as “Brexit,” continues to be a source of uncertainty for markets. A strong majority in parliament does not want to leave without a deal, but there is little agreement on what that deal should look like. It is likely the scheduled exit date of March 29 will be extended.

How long is hard to say. Theresa May, Prime Minister of the U.K., will try again this week to pass a deal through parliament after failing to do so last week. Its passing depends on the slim majority in favor of Brexit agreeing on how it should occur and voting for a deal they have rejected before. It is a confusing political environment that continues to raise uncertainty in the markets.

Keeping a balanced outlook on risk will help investors navigate the challenges and risk more effectively. Brexit is a potential risk in markets, but we have experienced similar, if not worse, events since the financial crisis. Some events that have taken place since 2009 include: the European debt crisis, Grexit, oil topping $100 per barrel, China’s slowing growth, Japan’s tsunami, and the Russia/Ukraine crisis.

 

All these events occurred, and still the S&P 500 remained in an elongated bull market. The accompanying chart illustrates that risks are managed or mitigated, and markets move on. Brexit will likely stay in the news for quite some time, but the last 10 years have shown the markets’ ability to withstand this type of turbulence over the long haul.

Fun Story

When Not Reading The Fine Print Can Cost Your Soul

Georgia high school teacher Donelan Andrews recently won a $10,000 reward for reading the terms and conditions of her travel insurance policy. The travel insurance company, Squaremouth, created the “Pays to Read” campaign to highlight the importance of reading policy documentation from start to finish. Other companies have had some fun with the fine print, one even committing users to hand over their immortal souls. Those who unchecked the box were awarded with a voucher. I guess it’s time for us to start reading Apple’s terms and conditions.


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