Presented by Mark Gallagher

General market news  
• The 10-year Treasury opened at 2.81 percent this week, slightly lower than last Monday’s open. In fact, this yield is at the low end of the range the 10-year has been trading in for the past month. The 30-year also opened lower, at 3.07 percent.
• The markets were unable to find their footing last week, as all three major U.S. indices declined by more than 5.5 percent. News that Cambridge Analytica, a political data firm, accessed the private information of more than 50 million Facebook users led to a sharp sell-off in Facebook stock. The stock’s significant weighting in the S&P 500 Index (it’s the fourth largest) and broad social media data concerns weighed heavily on the technology sector.
• Tariffs continued to grab headlines last week, as President Trump announced between $50 and $60 billion in trade tariffs on China. China’s response was swift, as the country announced its own tariffs of approximately $3 billion on U.S. steel, aluminum, pork, fruit, and wine. The actions led to concerns of a full-fledged trade war between the U.S. and China. On a positive note, the number of countries exempt from the U.S.’s proposed steel and aluminum tariffs has continued to grow. This trend will be one to monitor, as it provides an indication of the legitimacy of the proposed tariffs.
• Last week was a busy one for economic data. On Wednesday, existing home sales increased by more than expected in February, gaining 3 percent on a month-over-month basis. This increase was welcome, following declines in December and January.
• Also on Wednesday, the Federal Open Market Committee raised the upper limit of the federal funds rate from 1.50 percent to 1.75 percent. This was the first rate hike under new Chair Jerome Powell. Economists expect two to three more hikes this year.
• Finally, on Friday, February durable goods orders beat expectations, rising 3.1 percent against expectations for a 1.6-percent gain. This was a positive surprise, as business investment slowed in December and January. Given the high level of business confidence, this growth was welcome.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
There are only two major economic reports this week, but each will give us a look at the all-important consumer.

On Tuesday, the Conference Board will release its Consumer Confidence Index. The index is expected to rise from 130.8 in February to 131 in March, as the effects of the tax cuts continue to show up in paychecks. Although recent stock market turbulence may weaken confidence eventually, this survey was taken before last week’s declines, so it should not be affected. If the number comes in as expected, this would be a positive signal for the economy.

On Thursday, the personal income and spending report will be released. Personal income growth is expected to remain steady at a strong 0.4 percent for February, supported by continued employment growth and slow but steady wage growth. Personal spending growth is expected to tick down from 0.2 percent in January to 0.1 percent for February. Any decline would be due to a weather-related drop in utilities spending and a decline in gas prices, making this number better than it seems.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®

Presented by Mark Gallagher

General market news
• The 10-year Treasury yield was the same this Monday morning as it was a week ago: 2.87 percent. It still seems to be moving within a range, however, as it was as low as 2.79 percent midweek last week. In fact, the 10-year has moved between 2.78 percent and 2.95 percent over the past 30 days on low volatility. Breaking above 3 percent will be difficult, and even if it does happen, the level will likely be hard to maintain for an extended period.
• The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average were all down more than 1 percent last week. Due to the pullback in the 10-year Treasury yield during the week, bond proxies in the utilities, real estate, and telecom sectors were among the top performers.
• The week featured a slew of news from Washington. The week began with President Trump blocking Singapore-based Broadcom’s acquisition of U.S.-based Qualcomm, citing national security concerns. On Tuesday, Rex Tillerson was removed from his role as secretary of state. This was followed by the appointment of Larry Kudlow as chief economic advisor on Wednesday. On Thursday, special counsel Robert Mueller subpoenaed the Trump Organization for documents related to Russia’s meddling in the 2016 presidential election. The newly implemented trade tariffs on steel and aluminum were in the news as well, as the European Union and Japan requested exemptions from the trade restrictions.
• The release of major reports concerning inflation, spending, and housing made last week a busy one for economic data. On Tuesday, Consumer Price Index growth came as expected at 2.2-percent year-over-year. On Wednesday, Producer Price Index growth came in slightly lower than expected at 2.5 percent. Both of these measures sit near the 2-percent inflation target set by the Federal Reserve (Fed), which means further inflation growth may lead to additional rate hikes.
• Also on Wednesday, retail sales data was released, indicating a 0.1-percent decline in February. The core figure, which strips out volatile transportation spending, was stronger, with 0.3-percent growth in the month. Nevertheless, the decline in the headline figure was disappointing, given the boost to disposable income resulting from recent tax reform.
• Finally, on Friday, housing starts and building permits both declined by more than expected in February. Given low supply levels and rising housing prices, it appears as if homebuilders may be feeling the pinch of higher labor and material costs. This will be an important sector of the economy to monitor.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
This week, all eyes will be on the Fed. On Wednesday, the Fed will release its statement for the March meeting, which is widely expected to show a 25-basis-point increase in interest rates. This will be followed by a press conference at which new Fed Chair Jerome Powell will have his first chance to explain his thinking in this format. Markets will be looking for hints about whether and when more rate hikes will be coming.

Housing is another focus this week. The existing home sales report, released on Wednesday, is expected to show that sales rose from 5.38 million to 5.43 million in February. This would be only a partial recovery after last month’s significant decline. On Friday, the new home sales report is also expected to show a gain for February, from 593,000 to 620,000. Again, this would represent only a partial recovery after a significant decline. In conjunction with the recent pullback in builder confidence, these reports will give us an indication of how the housing market is trending.

Finally, on Friday, the durable goods orders report may show better news for business investment. The headline index, which includes transportation, is expected to recover from a monthly drop of 3.6 percent in January to a gain of 1.6 percent in February, on a recovery in the extremely volatile aircraft orders segment. The core orders report, which excludes transportation and is a better indicator for the general economy, is also expected to improve, from a decline of 0.3 percent to a gain of 0.5 percent. This would be a positive sign, suggesting that business investment is not slowing as much as earlier data had suggested.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®

Presented by Mark Gallagher

General market news  
• The yield on the 10-year Treasury opened at 2.89 percent on Monday; the 30-year and 2-year opened at 3.14 percent and 2.26 percent, respectively. Although rates have moved higher over the past five to six months, the spreads in yield between the 2-year and 10-year and between the 2-year and 30-year have remained near current-cycle lows, indicating a very flat yield curve.
• All three major U.S. indices were up more than 3 percent last week. Friday’s strong employment report, which indicated that the economy added 313,000 jobs in February, helped propel markets higher. In addition, inflation fears eased, as hourly earnings dropped to an increase of 2.6 percent year-over-year. This was down from 2.9 percent in January.
• The week was not without its concerns, however. Gary Cohn, President Trump’s chief economic advisor, stepped down following news that the tariffs on steel and aluminum would be implemented. As the week progressed, fears of a trade war and the affect of the tariffs eased as exemptions were put in place for Canada and Mexico. Additionally, it was stated that U.S. allies could potentially be exempt if they were to offer the U.S. concessions on trade.
• The financial sector was the top performer on the week, benefiting from the Senate’s continued work on the Dodd-Frank Act, which could potentially ease regulations within the sector.
• Last week was relatively quiet in terms of major economic news. On Monday, the Institute for Supply Management’s Nonmanufacturing composite declined slightly to 59.5, above expectations for a further fall to 59. This measure of confidence in the service economy remains in healthy expansionary territory.
• As mentioned above, the February employment report came in much better than expected. In addition, there were upward revisions to both December and January figures. Much of this surprise growth came from increased participation, as the participation rate ticked up from 62.7 percent to 63 percent. Unemployment remained unchanged at 4.1 percent. Going forward, the strength of the labor market likely will lead to further Federal Reserve rate hikes in 2018.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
With five major reports expected, this will be a busy week for economic news.

We’ll kick things off on Tuesday with the consumer prices report. The headline number, which includes food and energy, is expected to drop from a 0.5-percent increase in January to a more modest 0.2-percent increase in February, as surges in energy prices normalize. The annual figure, however, is expected to rise from 2.1 percent to 2.2 percent. Core inflation, which excludes food and energy, is also expected to drop on a monthly basis, from 0.3 percent in January to 0.2 percent in February. The annual figure in this case, though, is expected to stay steady at 1.8 percent. If these numbers come in as expected, they would indicate stable conditions.

On Wednesday, the retail sales report is expected to show renewed strength. The headline number, including autos, is expected to rise from a 0.3-percent decline in January to a 0.3-percent increase in February, as auto sales bounce back. Core sales, which exclude autos, are expected to improve as well, from a flat result in January to a 0.4-percent increase in February. The boost in take-home pay resulting from the tax bill, along with high consumer confidence, should drive sales higher.

On Thursday and Friday, respectively, we get the National Association of Home Builders (NAHB) industry survey and the housing starts report. The NAHB survey is expected to stay steady at 72, which is a high level, although there may be some downside risk based on supply and labor shortages. After jumping to a 16-year high in January, housing starts are expected to tick down from 1.326 million to 1.286 million, as multifamily construction drops back even as single-family construction continues to rise. These would be healthy reports if they come in as expected.

On Friday, the industrial production report is expected to improve, with the headline figure rising from a decline of 0.1 percent in January to a gain of 0.3 percent. Manufacturing is expected to show a similar gain, from flat in January to 0.3-percent growth in February. With both oil production and manufacturing showing strength, we could see even faster growth here.

Finally, and also on Friday, the University of Michigan consumer confidence survey is expected to pull back from 99.7 in February—the second-highest level since 2004—to 99.5 in March on stock market volatility. Here as well, there looks to be upside potential, given faster employment growth and strong results in other confidence surveys.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®