Last week, equity markets celebrated the nine-year anniversary of the bull market which began on March 9th, 2009.  U.S. equity markets shrugged off new tariffs signed by POTUS, another high-profile resignation from the White House, and welcomed a denuclearize salvo from North Korea as a sign of reduced likelihood of conflict in Asia.  Non-U.S. equities, commodities, and interest rates moved higher as well. A blowout February jobs report on Friday had many investors seeing a “Goldilocks” scenario with higher output accompanied with a higher ceiling for output.

Market Anecdotes

  • POTUS signed steel and aluminum tariffs but neutered the negative impacts by exempting Canada and Mexico initially with more trading partners, ex-China, likely to be granted exemptions as well.
  • Chief White House economic advisor, Gary Cohn, resigned last week, in what seemed to be a fundamental disagreement on trade policy surrounding tariffs.
  • In a nod to the limited importance of the steel industry to the U.S. stock market, Josh Brown noted that Netflix has added $50b to its market cap in 2018, larger than the entire publicly traded U.S. steel industry combined.
  • Fed narrative has turned marginally more hawkish over the past few weeks with Jerome Powell set to run his first meeting as Fed Chair on March 20th.  The market is currently pricing in three hikes for 2018 with a 25% probability of four hikes.
  • While the S&P 500 and DJIA are still 3.2% and 5% below the all-time highs in late January, the tech heavy NASDAQ broke to new record high on Friday.
  • An interesting note from Leuthold on the January correction was that it represented the ninth correction of 7% or more since 2009, the most ever recorded during a single cyclical bull market.
  • The ECB dropped its pledge to extend or accelerate QE bond purchases, cementing their intent to either taper or cease bond buying in September 2018.  Draghi offset this news with a dovish narrative that inflation expectations remain subdued while growth outlooks are improving.
  • Bloomberg noted the remarkable prevailing appetite for tech stocks by pointing out the largest technology sector ETF took in $616mm in assets in a single day last week.  The S&P 500 technology weighting is now above 25% for the first time since 2000.

Economic Release Highlights

  • February payrolls impressed with a massive beat and headline unemployment staying at 4.1%.  313,000 new jobs combined with soft wage growth of 2.6% suggests there is adequate slack in the labor market with wage inflation anything but imminent at this point.
  • Labor force participation rate edged slightly higher to 63%.  LFPR has been moving sideways for an extended time which, all else equal, should be a sign of strength given labor force demographics.
  • 31,000 new manufacturing jobs in February marked four consecutive months of 25,000+ new manufacturing jobs – first time we’ve seen that since 1998.
  • February ISM Non-manufacturing index, which represents a large portion of the U.S. economy, registered a strong 59.5 reading.  PMI services index also registered a 55.9 reading, both confirmations of a strong service sector.
  • Case Shiller home price index rose 6.2% YoY in February, an additional sign of the strong housing market.
  • Booming auto loans drove household debt to its highest quarterly increase in over ten years, but the redhot job market has consumer financial health, based on the ratio of net worth to disposable income, at its highest level on record.