Weekly Market Commentary March 4, 2019

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The S&P 500 used another good-news Friday to move into positive territory for the ninth week out of the last 10. Last week, the popular measure of domestic stock performance increased another 0.5%.

Good economic news released Thursday morning showed U.S. economic growth continued at a healthy pace. The Trump administration’s decision to delay increased tariffs on China was viewed as an indication some sort of resolution on trade was likely to occur. The same optimism driving stocks higher is also fueling gains in oil.

The global MSCI ACWI gained 0.2%. The positive economic news pressured fixed-income investments. Bonds reversed recent gains as the Bloomberg BarCap Aggregate Bond Index slid 0.4%.

Key Points for the Week

  • U.S. economic growth surpassed expectations and lowered concerns of a near-term recession.
  • The S&P 500’s first two months of the year were the strongest since 1991.
  • U.S. stocks rose for the ninth week out of the last 10.

Monthly Performance

The results through the end of February have been nothing short of fantastic. The S&P 500 climbed 3.2% in February and has gained 11.5% this year. Excluding dividends, the S&P 500 is up 11.1%, which is its largest price gain since 1991. Global stocks have performed well, too, rising 10.8% through the end of February. At month-end, the Aggregate Bond Index had risen 1%. Even with the strong increases, the S&P 500 is still 3.4% short of its all-time high in September, 2018.


Market Analysis

 

U.S. fourth-quarter economic growth surprised to the upside and reduced concerns slowing global growth might trigger a U.S. recession. As the accompanying chart shows, U.S. GDP grew at 2.6% in the fourth quarter, after adjusting for seasonal variances. Official expectations were for 2.2% growth, and many were concerned growth would be even slower.

The underlying data provided evidence the U.S. economy remains healthy. Consumer spending rose 2.8%, and private investment rose 4.6%. Both exports and imports increased, suggesting optimism about trade is increasing global activity. The strength in those areas was enough to overcome weakness in residential fixed investment, as the housing market continued to post weak data.

Year-over-year growth, which includes the slow-growing first quarter and rapidly growing second and third quarters, came in at 3.1% and represented the fastest economic growth for a 12-month period since 2015. The strong growth and strength in business investment was viewed by many as a byproduct of the lower tax environment in the United States.

Expectations in 2019 are for growth to slow. Both the Federal Reserve and the Congressional Budget Office are projecting 2.3%. Growth at or above 2.3% will likely be sufficient to support a strong employment environment and increasing sales. Growth below 2% would create some challenges.

Concerns about a recession declined, but the economy is  only as good as its last performance. Even though the data were very solid, concerns about growth will remain. This week’s job report will provide the next glimpse as to the strength of the U.S. economy.


Fun Story (Warning: This story was written by someone biased to the New England Patriots)

Man accused of faking own kidnapping to avoid Super Bowl bet

Robert Brandel was found tied up in his truck in New York last Wednesday, claiming he had been kidnapped. After further investigation, it was determined that Brandel faked his kidnapping in order to get out of a $50,000 Super Bowl bet and is being charged with fraud and filing a false police report. What is the moral of this story? Don’t gamble? Don’t try to get out of financial obligations? No. I’d say the moral of the story is to never doubt Tom Brady.


Boring Economic Education Point: Seasonally Adjusted Data

We interrupt our usual fun story for a brief explanation of “seasonally adjusted data,” which is part of the GDP data. (Thank you to the four people who continued to read past this point.) Seasonal adjustments are data changes made by economists to allow comparisons across recent periods.

For instance, Christmas sales drive up economic activity in the fourth quarter and data must be adjusted to compare the third and fourth quarters. Sometimes those adjustments miss the mark. Economic growth is often reported to be very low in the first quarter and then rebounds the rest of the year.


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