Presented by Mark Gallagher

General market news  
• Treasuries experienced some elevated volatility last week, with the U.S.-China trade talks and the newly imposed tariffs sending money to safety. The 10-year Treasury was as high as 2.48 percent last week and 2.54 percent the week before. It opened early Monday at 2.41 percent. The short end of the curve remains inverted. The 3-month Treasury is trading at 2.36 percent, which is higher than even the 8-year, which is currently trading at 2.35 percent.
• Global markets were down across the board last week, as U.S. and China trade concerns pushed markets lower. President Trump tweeted that he would increase the tariffs on $200 billion of Chinese goods from 10 percent to 25 percent. The story continued to play out during the week as the president accused China of reneging on their agreement. Despite the accusations, Liu He, a top Chinese trade official, and his team met with U.S. trade officials in Washington. The discussion did not do much to ease recent tensions.
• Those sectors hit hardest were technology, materials, and industrials. The top performers were consumer staples, energy, and REITs as investors flocked to safer assets.
• Last week was very quiet on the economic update front. On Thursday, the Producer Price Index showed 0.2-percent growth in April, leading to a 2.2-percent annual growth rate.
• On Friday, the Consumer Price Index showed 0.3-percent growth in April and 2-percent annual growth.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
This week is a busy one for economic news, including looks at retail sales, consumer confidence, and the housing sector.

The data releases start on Wednesday with the retail sales report. The headline index is expected to show a gain of 0.2 percent for April. This would be reasonably healthy, although down from a rebound gain of 1.6 percent in March due to a decline in auto sales. The core index, which excludes autos and is a better economic indicator, is also expected to moderate, but by less. It should drop from a 1.2-percent gain in March to a still very strong 0.7-percent gain in April. If the numbers come in as expected, it would keep the short-term trend in positive territory. It would also likely signal significantly stronger growth in spending in the second quarter after a weak first quarter.

Also on Wednesday, the industrial production report will be released. It is expected to improve from a small decline of 0.1 percent for March to flat for April, as a drop in utility production from unseasonably warm temperatures was offset by higher oil production and an improvement in manufacturing. Manufacturing is also expected to improve, from flat in March to a gain of 0.1 percent for April. Although the expected rebound would be welcome, it would still leave both reports down over the past couple of months.

For the housing sector, the National Association of Home Builders will release its industry survey on Wednesday. It is expected to rise from 63 in April to 64 for May. This reflects rising confidence in the homebuilding market on improving sales of new homes. On Thursday, the housing starts report is expected to show similar improvement, with an increase from 1.14 million in March to 1.22 million starts for April on an annualized basis. Such an improvement would indicate the housing market is stabilizing after a slowdown. This would be consistent with the rise in affordability and would be a positive economic indicator.

Finally, the University of Michigan consumer confidence survey, released on Friday, is expected to increase slightly from 97.2 in April to 97.8 in May. There may be some downside risk here, as gas prices have risen, and the recent stock market turbulence may weigh on confidence. If the number comes in as expected, this would be well above the historical average and serve as a counterweight to the weaker results from the recent Conference Board 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.

© 2019 Commonwealth Financial Network®

Presented by Mark Gallagher

General market news
• Rates were very volatile last week, with the 10-year Treasury hitting a low of 2.46 percent on Wednesday and a high of 2.56 percent on Friday. Concerns over trade talks with China drove rates down over the weekend, with the 10-year starting the week at 2.48 percent.
• U.S. markets were mixed last week, as Federal Reserve (Fed) Chair Jerome Powell and the Federal Open Market Committee (FOMC) kept rates unchanged and maintained a patient approach. On Wednesday, Powell held his press conference after the most recent FOMC meeting. The biggest news was that he saw the decline in core inflation as transitory and reiterated that the Fed will continue to be patient and lean on the data for its inflation mandate. As we move toward the end of peak earnings season, the blended earnings growth rate (according to FactSet) has come in at –0.8 percent compared with the nearly –4.2 percent at the beginning of earnings season. Here, it seems the effect of the government shutdown, fourth-quarter selloff, and delayed tax refunds has waned.
• The tech sector saw mixed results last week, as Apple (AAPL) beat citing improvement in China, while Alphabet (GOOG/GOOGL) missed citing currency headwinds and issues with the YouTube algorithm, which hurt ad revenues. The top-performing sectors on the week were health care, financials, and industrials. The worst performers were energy, communication services, and materials.
• Last week was a very busy one for economic updates. On Monday, March’s personal income and personal spending reports showed growth of 0.1 percent and 1 percent, respectively. The growth in spending was especially impressive.
• On Tuesday, the Conference Board consumer confidence survey came in better than expected. It jumped from 124.1 to 129.2, against expectations for 126.8.
• On Wednesday, the Fed released the FOMC rate decision, which kept the federal funds rate unchanged. This decision was widely expected by market participants.
• Wednesday also saw the release of the Institute for Supply Management (ISM) Manufacturing survey. As expected, this measure of manufacturer confidence dropped, from 55.3 to 52.8. The magnitude of the drop, however, was larger than expected.
• On Friday, the ISM Nonmanufacturing survey was released. The news here was also disappointing. The survey declined from 56.1 to 55.5, against expectations for a modest bump up to 57.
• Finally, Friday also saw the release of April’s employment report, which came in much better than expected. An eye-opening 263,000 new jobs were added during the month. This number drove the unemployment rate down to 3.6 percent, which is the lowest level since 1969.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to 
This week’s data is focused around prices. There will also be an update on the trade balance.

The producer price reports are due on Thursday. The headline index, which includes energy and food, is expected to drop from a 0.6-percent increase in March to a 0.2-percent increase for April on a moderation in overall energy prices. Here, there may be some upside risk from continued gasoline price increases. This result would take the annual rate from 2.2 percent up to 2.3 percent, which is still reasonably consistent with the Fed’s inflation target. The core index, which excludes energy and food and is a better economic indicator, is expected to edge lower on a monthly basis, from 0.3 percent in March to 0.2 percent in April. The annual rate is still expected to increase, from 2.4 percent to 2.5 percent, on base effects.

Also on Thursday, we will see the international trade report. It is expected to show that the trade deficit worsened slightly, going from $49.4 billion for February to $51.4 billion for March. This is a reversal of the improvement seen during the first quarter. It may suggest that, as expected, the trade balance will likely not contribute as much to growth for the second quarter.

On Friday, the consumer price reports are due. The headline index, which includes energy and food, is expected to stay steady at a 0.4-percent increase from March to April on a continued rise in gasoline prices. This result would take the annual rate from 1.9 percent up to 2.1 percent, which is consistent with the Fed’s inflation target. The core index is expected to edge up from 0.1 percent in March to 0.2 percent in April, with a similar increase in the annual figures from 2 percent to 2.1 percent. Overall, if the numbers come in as expected, they would show that inflation remains under control.

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.

© 2019 Commonwealth Financial Network ®

Presented by Mark Gallagher

General market news
• Rates moved lower last week, as the 10-year Treasury hit a high of 2.61 percent the previous week, moved to as low as 2.49 percent late last week, and opened at 2.52 percent early Monday. The curve remains flat and inverted on the short end. Continued volatility is expected in the weeks and months ahead.
• Both the S&P 500 and the Nasdaq Composite hit all-time highs last week. Further, we moved deeper into earning season; thus far, the numbers do not appear to be as bad as initially feared. FactSet has reported that 77 percent of firms that have reported have beaten their consensus EPS estimates. Still, those that have missed the mark have been punished, with Intel (INTC), 3M (MMM), Tesla (TSLA), and UPS (UPS) all falling at least upper single digits. Those that fared well included Microsoft (MSFT), eBay (EBAY), and Ford (F).
• We did see a few themes play out, including auto weakness and headwinds from Europe and China. It will be interesting to see if these themes continue throughout the quarter and if the stimulus in both regions will aid a rebound going forward.
• Last week saw the release of a large number of important economic updates, many of which came in better than expected. The week began with the release of March’s existing home sales data, which declined by 4.9 percent. Although this decline was larger than expected, existing home sales in February grew by more than 11 percent, so this could be just a brief pullback.
• On Tuesday, new home sales came in much better than existing home sales, with 4.5-percent month-over-month growth. This was against expectations for a 2.7-percent decline, so it was a pleasant surprise for economists.
• On Thursday, March’s durable goods orders also handily beat expectations, with 2.7-percent growth against projections for a more modest 0.8 percent.
• Finally, on Friday, the first estimate of first-quarter gross domestic product was released. The economy grew at an annualized rate of 3.2 percent in the first quarter, far surpassing economist expectations for 2.3-percent growth. The key factors that led to this outsize growth were higher-than-expected exports and an increase in inventories. These two factors alone contributed to more than half of the growth in the first quarter and are unlikely to continue for the rest of the year.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
This week is a very busy one for economic data, with a number of key reports. It starts on Monday, with the personal income and spending reports. We should see accelerating growth in income, up from a gain of 0.2 percent for February to 0.4 percent for March, on faster wage growth. Faster income growth would be a positive sign. The personal spending report will be a bit different than usual, as both February and March figures will be published at the same time in a final catchup from the government shutdown. February spending growth is expected to come in at 0.1 percent, while March is expected to be much stronger at 0.7 percent on the recent strong retail sales report. These results would signal faster consumption growth after a slowdown in the first quarter. If the numbers come in as expected, the rebound would be consistent with renewed confidence and would be a positive sign.

On Tuesday, the Institute for Supply Management (ISM) Manufacturing index is expected to pull back slightly, from 55.3 for March to 55 for April. This is a nominal decline and would suggest that a slowdown in global demand has not yet significantly damaged the U.S. manufacturing sector. Plus, there may be some upside here as global conditions seem to be improving. This is a diffusion index, where values above 50 indicate expansion and below 50 indicate contraction. So, this would be a reasonably healthy figure, suggesting continued growth.

Also on Tuesday, the Conference Board’s survey of consumer confidence is expected to show that confidence rose from 124.1 in March to 126.1 in April. This rise would signal the rebound from the drop after the government shutdown continues, which would be positive. But there may be some downside risk on the recent rise in fuel prices, which historically has hurt confidence levels.

On Wednesday, the Federal Open Market Committee will conclude its regular policy meeting with a statement and press conference. No meaningful action is expected from this meeting, but markets will be watching for hints about whether the Federal Reserve’s concerns about the economy may lead to rate cuts.

On Friday, the ISM Nonmanufacturing index is expected to increase slightly, from 56.1 in March to 57.2, on strong domestic demand for services. This is a diffusion index, where values above 50 indicate expansion and below 50 indicate contraction. So, this would be a very healthy figure, suggesting continued growth.

Finally, on Friday, the employment report is expected to show that job growth pulled back slightly from 196,000 for March to 181,000 in April. There may be some downside risk here, which could pull the shorter-term averages down further and indicate job growth is finally slowing. The unemployment rate is expected to hold steady at 3.8 percent. Wage growth is expected to pick up from 0.1 percent to 0.3 percent, which would take annual growth from 3.2 percent to 3.3 percent. If the numbers come in as expected, it will provide more assurance that despite recent weakness, the economic fundamentals remain sound.

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.

©2019 Commonwealth Financial Network®

Presented by Mark Gallagher

General market news
• Rates moved slightly upward last week, with the 10-year Treasury opening at 2.57 percent on Monday. The 30-year also moved higher, nearly hitting 3 percent midweek before settling back and opening at 2.97 percent on Monday.
• U.S. indices were mixed last week as cyclical stocks outperformed, while defensive names faced selling pressure. The risk-on trade was largely driven by investors moving out of health care, real estate investment trusts, and utilities. The sell-off in health care was due to pressure from both sides of the political aisle: Bernie Sanders and the Democratic Party floated the “Medicare for All” proposal, while President Trump and his administration are said to be preparing their own overhaul of the health care system. Investors appeared to move away from the uncertainty surrounding health care and into technology, financials, and consumer discretionary stocks, which are being supported in earnings season and strengthening retail data. Health care providers—like Tenet Healthcare (THC), HCA Healthcare (HCA), and Cigna (CI)—were among the stocks that were hit particularly hard. We would keep an eye on these stocks, as it will be interesting to see if the rhetoric around health care continues into the 2020 campaign season or if it will take a back seat to other issues.
• Last week was light on economic updates, in part due to the market holiday on Friday. The one major release that we saw was positive, however. Retail sales in March rebounded from a decline in February, rising by 1.6 percent against expectations for 1-percent growth. This was a very positive result, as retail sales were slow to start the year. The initial slow sales trend was in response to lowered consumer confidence at year-end, but confidence has since largely recovered. It is very encouraging to see sales following the same trend.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
This is a slow week from a data standpoint, but we will get a look at housing sales, durable goods orders, and what economic growth looked like at the start of the year.

On Monday, the existing home sales report is expected to show that sales slowed from an annualized rate of 5.51 million in February to 5.29 million in March. This result would suggest that lower mortgage rates may not have supported housing demand as much as expected. Similarly, on Tuesday, the new homes sales report is expected to drop from a 667,000 annualized run rate in February to 645,000 in March. If these numbers come in as expected, they would show that recent optimism around the housing sector may be overdone.

On Thursday, we will see the durable goods orders report. The headline index is expected to show a significant rebound, going from a 1.6-percent decline in February to a 0.5-percent gain in March. This jump would be based largely on a recovery in aircraft orders, despite Boeing’s problems with the 737 Max. The core index, which excludes transportation and is a better economic indicator, is also expected to show a rebound, from a decline of 0.1 percent to a gain of 0.3 percent. There may be some downside risk to these numbers as recent business confidence survey data has been weak. Even if the numbers come in as expected, slowing business investment growth is likely to be a drag on first-quarter growth.

Finally, on Friday, the initial estimate of first-quarter economic growth, in gross domestic product, is expected to show growth dropping from 2.2 percent in the fourth quarter of last year to 1.8 percent for the first quarter of 2019. Most of the growth is likely to come from net trade, on faster export growth, slowing imports, and increased government spending, while consumption and business investment both slowed. First quarters have historically been weak and followed by stronger growth. So, if the number comes in as expected, it would be in line with recent history.

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.

© 2019 Commonwealth Financial Network®