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Market Recap Week ending 3.1.19

-Darren Leavitt, CFA

Last week the proposed increase of trade tariffs on China was postponed while negotiations continued between the countries. Markets continued to view the negotiations as constructive although comments from US Trade representative Lighthizer during his testimony in front of Congress on trade seemed a bit less optimistic.  Enforcement is still seen as a major hurdle.

Investors also heard testimony from Fed President Powell on Monetary policy.  Markets welcomed his comments that the Fed was close to a plan that would end the balance sheet runoff and the Fed would remain patient on rates.  No real change here- but his comments seemed more impactful on markets than some of the other headlines that hit last week.

The political theater was also on full display last week with Trump’s former personal lawyer Cohn testifying before Congress.  Trump’s visit to Vietnam to meet with North Korea’s leader Kim Jong Un was prevalent in the headlines but offered very little impact to the markets.

Economic data was mixed last week.  The advanced reading on Q4 GDP was a bit better than expected at 2.6% vs. the consensus estimate of 2.4%.  The Chicago PMI was also better than expected, coming in at 64.7 vs. 57.5.  On the other hand, the ISM Manufacturing Index missed expectations coming in at 54.2 vs. 56.   The University of Michigan’s index of consumer sentiment was also light at 93.8 vs. 95.6.  Internationally, PMI’s in China and Japan both were disappointing with the former showing its third month of contraction.

The S&P 500 gained 0.4% for the week while the NASDAQ increased by 0.9%.  The Dow and Russell 2000 were essentially flat.  The S&P 500 was able to close above the 2800 level on Friday, but that level continues to be a major level of resistance and will be a key level for the markets over the coming weeks.  Treasury yields continued to tick up last week.  The yield on the 2-year gained 7 basis points and closed at 2.55% while the 10-year increased 10 basis points and closed at 2.76%.  Gold struggled last week losing $23 to close at $1299 an ounce.  Oil was off slightly for the week and closed at $55.81 a barrel.

We had some significant changes to the model last week that have positioned our models in a more conservative posture.  The largest move was out of emerging markets and into US corporate paper.  We also sold out of our positions in Gold and long duration US treasuries. Additionally, we reduced our position in US real estate.  The models added a position in International bonds and increased positions in international real estate and 7-10 year duration US treasuries.  Please let us know if you have any questions about the models and or the recent changes.

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