The global search for yield has driven tremendous fund flows into all corners of the fixed income market. While our primary focus is on investment grade bonds, this trend has also driven yields lower on non-investment grade bonds which are sometimes referred to as “high-yield” or “junk” bonds.
Earlier in this expansion it was all about jobs. Each month, we would wring our collective hands over how many jobs were created, what kind of jobs were created and whether they were even good jobs. Today, while it is still a market moving number, the monthly payroll report doesn’t seem to carry as much mindshare with Wall Street.
There were a number of moving pictures this past week that we could cover. One topic that we have not covered in our communication that caught our attention this week is … opioids.
For the week, the S&P 500 returned -1.41 percent and the 10-year U.S. Treasury bond yield declined to 1.51 percent. On Friday, the S&P 500 declined by more than 2.5 percent on news that China had escalated the trade war which was coupled with a similar response from the White House.
On Wednesday at midday, the global financial media held their collective breath as the benchmark U.S. Treasury Yield Spread (2-year/10-year yield) inverted. Then, as they exhaled, minor hysteria ensued.
We were in consensus regarding our 2019 Investment Outlook theme, “The Fasten Seatbelt Sign Is On,” and this week’s market volatility reinforced that we landed on the right message. The Dow was down by 600 on Tuesday and then rallied by nearly 1,000 points within 24 hours.
After rising in lockstep for most of this year-to-date, stocks and bonds moved in dramatically different directions after a week chocked full of market moving developments.
This morning the Bureau of Economic Analysis released the second quarter GDP estimate and, while growth was down 3.1 percent from the first quarter, it was still a healthy 2.1 percent with consumer and government spending that was strong.
A couple of months ago, Netflix announced it would be losing the number one most-watched show on the platform, The Office, in 2021 to NBC Universal (owned by Comcast) in order to promote their own streaming service set to launch next year.
Federal Reserve Chair Jerome Powell and other members of the rate-setting Federal Open Market Committee (FOMC) have signaled they will be cutting the benchmark federal funds rate at the end of this month. This will be their first interest rate cut since December 2008.
As the second quarter came roaring to a close, stocks marched consistently higher while bond yields moved drastically lower. Those trends continued the first week of July, but it is doubtful that they can continue in unison much longer. Either the economy stabilizes and rates stop falling, or the stock market will inevitably take a break from this rise higher.
The Roman poet Marcus Manilius, proposed author of Astronomica, the earliest work describing astrology, characterized the sign Libra as “the sign in which the seasons are balanced.” Last week, Facebook announced that Libra is now the moniker for its new blockchain-based payment system.
Veruca Salt was a character in the novel and film Charlie and the Chocolate Factory. Her character was the greediest, most spoiled child of all the children that received a “Golden Ticket” and had the opportunity to tour the Wonka Chocolate Factory
Investors anticipating Fed rate cuts in the months ahead have become inversely sensitized to economic news supporting continued economic expansion. Last week’s surprisingly tepid payroll report and today’s reassuring read on U.S. retail sales resulted in opposing stock price reactions.
After a huge run to start the year, equity markets declined throughout May as trade tensions re-escalated and fears of slowing economic growth came back into focus. This week, equity markets moved sharply higher with the S&P 500 closing within 2.5 percent of its all-time high.
As May draws to a close, equity investors were not treated well. Concerns over a slowing economy and heightening trade tensions with China weighed on investor sentiment. The S&P 500 fell over 6 percent for the month, which is the first negative month of May since 2012.
We have continued to closely monitor economic indicators for tariff-related impacts on business confidence but up to now it didn’t seem to have affected sentiment. However, that narrative seems to be changing, and we expect the administration will take note.
Last week, the unblemished veneer of the year-to-date equity market showed a crack. After a 24 percent rally, the S&P 500 set a new high and then sold off 5 percent shaking some investors’ confidence.
As first quarter reporting season draws to another constructive close, investors’ attention was ripped away from the earnings scorecard and refocused almost exclusively on trade.
It’s the tail-end of the first quarter of 2019 earnings reporting season and the results have been better than expected. While corporate earnings growth was up 22 percent in 2018 due in part to tax cuts, this year those same cuts will provide limited benefits and corporate earnings growth is expected to only be up around 5 percent for the full-year 2019.
