The S&P 500 finished the week on a seventh consecutive up day, the longest positive day streak of the year. With Brexit drama looming in the background, we had some strong economic data from China (PMI) and upbeat comments from U.S. and Chinese officials on trade negotiations which lifted risk markets globally. We had a busy and relatively constructive economic calendar in the U.S. to begin the second quarter which helped to lift stocks, commodities, rates, yield curve slope, and the U.S. dollar over the week.
- Every major U.S. index was up over 2% last week with the S&P 500 hitting a YTD high, now sitting only 3% below its record high set in September 2018.
- Healthy market breadth remains evident. The first quarter saw the strongest cumulative A/D reading since 1990 and last week, it posted a new record high. 12.5% of stocks in the S&P 500 are at new 52-week highs which is the best mark since January 2018.
- We’re at the doorstep of Q1 earnings reports with S&P 500 FactSet consensus estimates at -4.2%. After a tax-cut fueled 20% earnings growth in 2018, estimates this year are just 3.7%.
- Parliament rejected Monday’s batch of ‘indicative votes’ including plans to remain in the EU Customs Union, the Single Market, hold a second referendum on Brexit, and revoke Article 50. MPs have now rejected the PMs deal three times.
- PM May wrote to the EU requesting a flexible delay to June 30th which will be considered at an EU summit this week. In the absences of a deal or any other decisions, a no-deal Brexit will happen April 12th.
- China (7%), Europe (2.8%), and Mexico (5%) all moved sharply higher on the week as well. Over the past three years, German soft data has been notably stronger than hard data. Recent industrial output and manufacturing data has turned this relationship upside down.
- While wage growth increased dramatically in 2017-18 from 2.5% to 3.5%, wage pressures have been moving sideways for the past few months, albeit sideways on a higher floor.
- Bespoke noted that since February, the pace of high yield spread narrowing has lagged the pace of the rally in the equity markets.
Economic Release Highlights
- The March employment report registered 196,000 new jobs, a 3.8% unemployment rate, 0.1% wage growth (3.2% annual), and a slight draw down in the pool of available workers to 11.4mm.
- Last week’s weekly jobless claims report of 202,000 was the lowest reading since 1969.
- March non-manufacturing ISM index softened more than expected to 56.1 coming off a three-point surge in February. The ISM manufacturing index came in at 55.3, rising and beating expectations - an encouraging result.
- The February retail sales report slipped 0.2%MoM, below the low end of expectations but January was revised sharply higher to a very solid 0.7% gain. The blend represents a modest to moderate bounce off depressed holiday season readings.
- The February durable goods report contracted (-1.6%) as expected given the expected cooling off of aircraft orders (Boeing). Core capital goods were soft too at -0.1% after a big January.
- Construction spending jumped 1% in February (+1.1%YoY), bolstered by robust public spending on highways (9.5%) and streets (15.6%) - both up over 20% annually.