- U.S. markets closed lower after choppy trading day. Previous month’s negative performance breaks streak of 10 consecutive positive months. S&P 500 Index -1.1%, Nasdaq -0.8%, Dow -1.5%, Russell 2000 -1.6%.
- All sectors closed lower. REITs (-0.1%) and consumer discretionary (-0.5%) held up the best relative to peers. Energy (-2.3%), following U.S. inventory build, and materials (-2.1%) the worst underperformers.
- Negative breadth on NYSE (2.5:1); trading volume above average (~111% of 30-day avg.).
- Treasuries benefited from risk-off trading; 10-yr. note yield -4 basis points (-0.04%) to 2.86%.
- Commodities: WTI crude oil traded lower (-2.46% to $61.46/bbl.); COMEX gold flat at $1319/oz.; industrial metals broadly lower; U.S. dollar continued strengthening against major crosses (except the yen).
- Economic data: U.S. weekly petroleum supply report indicated a reversal of last week’s drawdown, supply increased +3M/bbl. vs. last week’s decline of -1.9M/bbl. Domestic existing home sales appear to be slowing, with the index coming in sharply below consensus (-4.7% vs. 0.3%); lack of supply and rising mortgage rates noted as key headwinds.
Overnight & This Morning
- Domestic equities open lower; softening economic surprise momentum, increased monetary policy tightening cited as a near-term headwinds.
- Europe following Wall Street lower. Lack of major driver due to mixed economic releases, focus on Brexit negotiations. STOXX Europe 600 -1.0%, DAX -1.4%, CAC 40 -1.0%, FTSE 100 -0.5%.
- Asia closed mixed, boosted by positive Chinese economic surprises. Focus broadly remains on Powell’s second testimony, rate concerns. Nikkei -1.6%, Shanghai Composite +0.4%, Hang Seng +0.7%.
- Treasury yields continue to strengthen; 10-yr. note yield -3 basis points to 2.83%.
- Commodities: Oil slide persists (~$60.85/bbl.); gold swinging lower (-0.9% to ~$1306/oz.); industrial metals continue decline.
- Economic releases: Another busy economic day led by U.S. jobless claims indicating an increasing demand for labor; came in below weekly expectations (210K vs. 230K) and below the four-week moving average of 220.5K. Domestic personal income also improved month over month growing +0.4% vs. +0.3%. February Chinese Purchasing Managers’ Index (PMI) results surprised to the upside (51.6 vs. 51.5) driven mostly by growth in new orders. Japanese PMI data declined from 54.8 to 54.1. Despite the regression, results remain near a multi-year peak for the country.
- Stay the course amid choppy trading. After seeing the S&P 500 Index move more than 1% in each of the past four days, clients may be concerned after having grown accustomed to the benign environment seen last year. However, it’s important to emphasize that volatility has historically been a characteristic of healthy, functioning markets; and recent increases in wage growth and other inflation metrics, coupled with the new Federal Reserve (Fed) chair and the upcoming midterm elections, have been and will likely continue to be catalysts for angst. Nonetheless, the data continue to show a strong economic backdrop, inflation that remains below the Fed’s 2% target despite the recent pickup, and corporate earnings that are growing at a double-digit clip. So while movements in the equity markets will likely continue to be more pronounced this year as compared to 2017, we continue to recommend sticking to your long-term strategy and looking at any additional pullbacks as potential buying opportunities for suitable investors.
- String of PMI releases support healthy economic backdrop. Headlined by the United States, China, and the Eurozone, the global average for first quarter PMI data reached its highest level since the spring of 2000. Drilling down, U.S. data showed growth in new business accelerated to 13-month highs as the Markit PMI Index (55.3) neared a three-year peak. China’s Caixin manufacturing PMI (51.6) topped both last month’s figures (51.5) and consensus (51.3), and contrasted with the official figures released Tuesday that showed the largest decline in more than six years. Elsewhere, Eurozone manufacturing PMI (58.6) ticked lower from the prior month (59.6) but was revised upward from the initial flash reading (58.5), while figures out of the United Kingdom and Japan disappointed.
- Consumer prices and income rose in January. The personal consumption expenditures price index posted a 0.4% month-over-month increase in January (+1.7% year over year); while the core figure, the Fed’s preferred measure of inflation that excludes volatile food and energy prices, rose 0.3% from the prior month (+1.5% year over year). Personal income rose 0.4%, while disposable income jumped 0.9%, marking its largest gain since December 2012. Overall, the data indicates that the consumer remains in good shape, and despite the modest pickup in wages recently, inflation still sits firmly below the Fed’s 2% target.
- All good things come to an end. The S&P 500 officially finished a month lower on a total return basis, down 3.7%. This ended its incredible record streak of 15 consecutive monthly gains. Technology and financials were the top performing sectors last month, although both still finished in the red; while energy was the worst performer. The good news? As we noted yesterday on the LPL Research blog, March has historically been one of the stronger months.
- More volatility. After the S&P 500 gained 1% or more for two consecutive days, it has dropped at least 1% the previous two days. The last time it changed at least 1% (up or down) for four consecutive days was in late June 2016 amid the Brexit vote. We saw six consecutive 1% changes then. Since February 5, when Jerome Powell took over as the new Fed chair, the S&P 500 has moved at least 1% (up or down) 11 times out of 17 days. To put that in perspective, the S&P 500 moved 1% a total of 8 days within 2017.
- Personal Income & Spending (Jan)
- Core PCE (Jan)
- Italy: Markit Adaci Mfg. PMI (Feb)
- France: Markit France Mfg. PMI (Feb)
- Germany: Markit Germany Mfg. PMI (Feb)
- Eurozone: Markit Eurozone Mfg. PMI (Feb)
- UK: Money Supply and Bank Lending (Jan)
- UK: Markit UK Mfg. PMI (Feb)
- Italy: GDP (2017)
- Australia: Commodity Index (Feb)
- Brazil: GDP (Q4)
- Japan: Consumer Confidence (Feb)
- Japan: Tokyo CPI (Feb)
- Japan: Monetary Base (Feb)