- The market mood darkened last week, as the global trade war continued to escalate and consumer confidence plunged. Preliminary consumer sentiment for March was worse than expected, and, at the same time, inflation expectations rose. While these tend to be volatile figures, the Fed does pay attention to inflation expectations in setting rate policy and is a worrisome data point. We do not wish to overreact to one set of macro figures, but the current array of data increasingly points to a combination of weaker growth and higher inflation for the U.S. economy.
- Unsurprisingly, equities sold off again last week, adding to this year’s losses with the S&P 500 briefly entering official correction territory (down -10% from recent peak) before a late week rally improved levels slightly. Trades war continued as new specific tariff targets on Canadian aluminum and European spirits were imposed, and President Trump reaffirmed the commitment to impose additional tariffs on April 2.
- For the week ahead, the FOMC is expected to hold rates steady. Markets will be paying attention to Fed Chair Powell’s comments for hints of the Fed’s propensity to cut rates again. In other macro data last week, February CPI came in better than expected. Headline CPI was 0.2% MoM down from 0.5% in January and better than the estimate for 0.3% Core was also 0.2% MoM, down from 0.4%. On a YoY basis, core CPI was 3.1% vs. the estimate of 3.2%, and down from 3.3% in January. Although better than expected, core CPI remains stubbornly above 3%.
- February PPI showed a notable slowing, which is a positive leading indicator for CPI in the coming months. PPI Final Demand MoM was 0.0%, compared to the estimate for 0.3%, and fell -0.1% MoM excluding Food and Energy. The YoY figures were also slightly better than expected.
- In earnings last week, Oracle (ORCL) and Adobe (ADBE) disappointed as AI product demand failed to spark optimism, struggling retailer Kohl’s (KSS) missed badly, and Dollar General (DG) warned of economic pressure on lower-end consumers. In positive news, Docusign (DOCU) and Ulta beauty (ULTA) shares rallied on stellar results. In other corporate news, Apple (AAPL) officially placed its Siri AI update on hold as the executive responsible for the division cited the bugs to be embarrassing, while Tesla (TSLA) saw a wave of analyst revisions to annual vehicle sales figures with some revising an annual drop of as high as 5% from a prior positive annual increase projection. Elsewhere, Rocket Mortgage (RKT) agreed to acquired online real estate listing marketplace Redfin (RDFN) for $1.75 bn, at a 65% premium to its share price.
The Week Ahead
- On Wednesday, the FOMC meets with the Fed Funds rate expected to be held steady in the range of 4.25% to 4.50%. In macro data this week, we get February Advance Retail Sales which are expected to rebound from a seasonal January decline.
- This week in earnings, FedEx (FDX), Nike (NKE), Micron (MU), Carnival Cruises (CCL), General Mills (GIS) and Darden Restaurants (DRI) are among companies set to report.
Market Summary – Returns and Yields
- Bonds are higher for the YTD, while U.S. equities are down. Oil and the dollar are also lower to start the year. Gold is at record highs above $3,000.
- Equity sector dispersion is extremely interesting, as many sectors are higher, but info tech is down materially. Given the size of info tech and communications in the overall indices, all major U.S. equity indexes are lower for the YTD so far.
For additional insights, be sure to check out last week’s blog post.
Definitions, sources, and disclaimers
This content is being published by Amerant Investments, Inc (Amerant Investments), a dually registered broker-dealer and investment adviser registered with the Securities and Exchange Commission (SEC) and member of FINRA/SIPC. Registration does not imply a certain level of skill, endorsement, or approval. Amerant Investments is an affiliate of Amerant Bank.
Definitions:
- Gross Domestic Product (GDP): A comprehensive measure of U.S. economic activity. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health. Source: Bureau of Economic Analysis (BEA).
- GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.
- The Current Employment Statistics (CES) program produces detailed industry estimates of nonfarm employment, hours, and earnings of workers on payrolls. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites. Source: Bureau of Labor Statistics (BLS).
- Initial Claims: An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility. Source: US Department of Labor (DOL).
- The Consumer Price Index (CPI): Is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Bureau of Labor Statistics (BLS).
- The national unemployment rate: Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force. Source: Bureau of Labor Statistics (BLS).
- The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work.Source: Bureau of Labor Statistics (BLS).
- Advance Monthly Sales for Retail and Food Services: Estimated monthly sales for retail and food services, adjusted and unadjusted for seasonal variations. Source: United States Census Bureau.
- Federal Open Market Committee (FOMC): Responsible for implementing Open market Operations (OMOs)–the purchase and sale of securities in the open market by a central bank—which are a key tool used by the US Federal Reserve in the implementation of monetary policy. Source: Federal Reserve.
- The Federal Funds Rate: Is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. Source: Federal Reserve Bank of St. Louis.
- The “core” PCE price index: Is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Source: Bureau of Economic Analysis (BEA).
Sources: U.S. Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), U.S. Department of Labor (DOL), Federal Reserve, Federal Reserve Economic Database (FRED), Federal Reserve Bank of Atlanta, U.S. Census Bureau, Department of Housing and Human Development (HUD), U.S. Department of Agriculture, U.S. Energy Information Administration (EIA), U..S Department of the Treasury, Office of the United States Trade Representative (USTR), U.S. Department of Commerce, data.gov, investor.gov, usa.gov, congress.gov, whitehouse.gov, U.S. Securities and Exchange Commission (SEC), Morningstar, The International Monetary Funds (IMF), The World Bank (WB), European Central bank (ECB), Bank of Japan (BOJ), European Parliament, Eurostats, Organization for Economic Co-operation and Development (OECD), National Bureau of Statistics of the People’s Republic of China, Organization of the Petroleum Exporting Countries (OPEC), World health organization (WHO).
Financial Markets – Recent Prices and Yields, and Weekly, Monthly, and YTD (Table): Bloomberg, Weekly Market Data is in USD and refers to the following indices: Macro & Market Indicators: Volatility (VIX); Oil (WTI); Dollar Index (DXA); Inflation (CPI YoY); Fixed Income: All U.S. Bonds (Bloomberg Aggregate Index); Investment Grade Corporates (Bloomberg US Corporate Index); US High Yield (Bloomberg High Yield Index), Treasuries (ICE BofA Treasury Indices); Equities: U.S. Industrials (Dow Jones Industrial Average); U.S. Large Caps (S&P 500); U.S Tech Equities (Nasdaq Composite); European (MSCI Euope), Asia Pacific (MSCI AP), and Latin America Equities (MSCI LA); Sectors (S&P 500 GICS Sectors) Source: Bloomberg. Fed Funds Rate probabilities, Source: CME FedWatch Tool.
Important Disclosures:
The information provided here is for general informational purposes only and should not be considered a customized recommendation, personalized investment advice offer, or solicitation for the purchase or sale of any security or investment strategy. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own situation before making any investment decision.
This information is obtained by AMTI from third-party providers from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve. All expressions of opinion are subject to change without notice in reaction to changes in market conditions. By using such information, you release and exonerate AMTI from any responsibility for damages, direct or indirect, that may result from such use. Consult the issuer of any investment for the most up-to-date and accurate information.
All references to performance refer to historical data. There could be benchmarks used that do not reflect the performance of funds or other products with similar objectives
Presentation does not apply in jurisdictions where its use has not been approved. Some products or strategies may be complex or unusual. Make sure you have a clear understanding of the products before investing. Investments may have different tax consequences in different jurisdictions and will depend on the circumstances. AMTI does not offer legal or tax advice, please consult your legal, CPA, or other tax professional regarding your situation.
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Additional Risks:
- Past performance is no guarantee of future returns.
- There is no assurance the Fund will pay distributions in any particular amount, if at all. Any distributions the Fund makes will be at the discretion of the Fund’s Board of Trustees
- There can be no assurance that any Fund or investment will achieve it objectives or avoid substantial losses. Actual results may vary
- The value of the investments varies and therefore the amount received at the time of sale might be higher or lower than was originally invested. Actual returns might be better or worse than the ones shown in this informative material.
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- Volatile markets: Because an investor may be unable to sell its shares, an investor will be unable to reduce its exposure in any market downturn
- Funds may invest in securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were rated. Below investment grade securities, which are often referred to as “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be illiquid and difficult to value
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