Following one of the worst weeks in two years, equity markets rebounded approximately 2% in this holiday shortened week as falling interest rates enabled REITs, telco, utilities, and consumer staples to lead the way.  The yield curve flattened with long rates (-0.9%) falling significantly more than short rates (-0.1%).

Market Anecdotes

  • FANG darlings struggled mightily last week as it looks like a tsunami of litigation and regulation is about to be unleashed.  Excessive valuations of the group is providing ample room for punishment. In mid-March, the group was trading at 65x P/E, three times the overall market.
  • Earnings reports and job numbers will come into focus now that the first quarter is a wrap.  FactSet reported consensus Q1 earnings estimates call for 7% growth which would be the largest Q1 result since the FactSet data set began in 1996.
  • A Bespoke stock seasonality anecdote puts April as a top 3 DJIA calendar month performer over 100, 50, and 20 year trailing periods.  Perhaps a last push before the ‘sell in May, go away’ period?
  • Geopolitical tensions in Asia have eased materially as China reported North Korea’s Kim pledged a commitment to denuclearization.
  • Markets breathed relief when the WSJ reported discreet trade talks between U.S. and China and the FT reported China offering to buy more U.S. semiconductors to reduce the trade deficit.  South Korea reportedly agreed to reduce steel exports and open its market to American automobiles.
  • While overall global economic data remains positive, the momentum has begun to slow and world equity markets are now down approximately 10% from record highs earlier in the year.

Economic Release Highlights

  • Final estimate of 4Q GDP was revised upward from 2.5% to 2.9%, driven by robust consumer spending.
  • March Consumer Confidence Index eased slightly to 127.7 from February’s level of 130.8.  Consumer sentiment hit its highest levels since 2004.
  • February headline and core PCE came in at 1.8% and 1.6% respectively.  Recent inflation trends remain on the uptick with the 3 month core PCE hitting its highest annualized pace since 2007 and the 3m/3m at its highest pace since 2012.
  • February wages and salaries posted a fourth consecutive healthy gain (+0.5%) but consumer spending looks soft compared to a robust fourth quarter which may result in an underwhelming 1Q GDP report.
  • Only 215,000 Americans filed initial jobless claims last week, a new cycle low and the lowest number since January 26, 1973.
  • February Chicago PMI report missed by a wide margin last week (57.4 vs 62.0).  Historically, this correlates to the more widely watched ISM Manufacturing report due this week.