Market Recap for the Week ending 4.5.19

-Darren Leavitt, CFA

The stock market started the second quarter with nice gains and forged new highs for 2019.  The S&P 500 gained 2.1%, the Dow increased 1.9%, the NASDAQ added 2.7%, and the Russell 2000 outperformed with a gain of 2.8%.  The S&P 500 has enjoyed 7 straight sessions of gains.  On the other hand, US treasuries gave up some ground last week.  The 2-year yield increased 7 basis points to close at 2.34% while the 10-year note yield increase 9 basis points to close at 2.5%.  Oil soared to new highs for 2019 with WTI closing at just above $63 a barrel.  Gold lost $3 on the week to close at 1295/oz.

The week started with better than expected manufacturing data out of China with their PMI figure coming in at 50.5 versus an expectation of 49.5.  The reading indicates growth again in manufacturing rather than the most recent contractionary figures we have seen out of China.  Additionally, markets were bolstered with a better than expected ISM number.  The reading for March came in at 55.3 versus a consensus estimate of 54.

Constructive tones out of the continued trade negotiations between the US and China also provided a tailwind for the markets.  Reports indicate the two sides are close on an agreement; in fact, later in the week, President Trump indicated we would know if a deal will be made in the next 4 weeks.  The two sides continue to be at odds regarding issues related to technology transfers and how the trade deal will be enforced.

Fridays much anticipated Jobs report also provided some fuel for the market.  Non-Farm Payrolls for March came in at 196k versus the consensus estimate of 160k.  The strength in the March number diminished the dismal reading for February which had come in at 20K but was subsequently revised to 33k.  The strong headline number was also accompanied by a benign reading on a wage growth with Average Hourly Earnings increasing by 0.1% versus an expectation of 0.2%.  The unemployment rate held steady at 3.8%.

We had a number of changes to our tactical models last week.  The most significant change was the move out of our corporate bond position with those proceeds going into the S&P 500 and into long duration US treasuries.  Additionally, we sold out of our position in international bonds and reduced exposure in international real estate while slightly adding to US real estate and to mid duration US treasuries.  Please let us know if you have any questions regarding the models and the most recent changes.

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