Presented by Mark Gallagher

General market news
• Rates moved higher last week after hitting a recent cycle low the previous week. The 10-year Treasury was as low as 2.33 percent 11 days ago and sold off to rates as high as 2.54 percent late last week. It opened at 2.48 percent early Monday. Meanwhile, the 2-year opened at 2.33 percent, and the 30-year opened at 2.90 percent.
• Global markets were up across the board last week. Global growth trade was back on as manufacturing surveys out of both the U.S. and China showed signs of improvement. Additionally, there appeared to be continued traction in trade talks between the two countries. Mortgage and auto data also showed signs of improvement following the Federal Reserve’s (Fed’s) dovish move on rates last month.
• Materials, financials, and consumer discretionary were the top three performers on the week. The sustained lower interest rate environment supported the materials and consumer discretionary sectors. Meanwhile, financials moved higher, supported by higher yields. Consumer staples, utilities, and health care were among the worst performers on the week, as investors favored the risk-on trade.
• Last week was a relatively busy one for economic updates. On Monday, February’s retail sales disappointed, falling 0.2 percent against expectations for 0.2-percent growth. Also on Monday, the Institute for Supply Management (ISM) Manufacturing survey was released. This measure of manufacturer sentiment rose by more than expected, from 54.2 to 55.3.
• On Tuesday, February’s durable goods orders declined by 1.6 percent, which was slightly better than the 1.8-percent drop that was expected. The core figure, which strips out volatile transportation orders, grew by 0.1 percent.
• Thursday saw the release of the ISM Nonmanufacturer survey. This index disappointed, falling from 59.7 to 56.1. This is a diffusion index, where values greater than 50 indicate expansion. So, this decline is not something to be overly concerned about for the time being.
• Finally, on Friday, March’s employment report was released. Expectations were muted following a disappointing February. But March saw a strong rebound in job creation, with 196,000 new jobs added during the month. Unemployment remained unchanged at 3.8 percent.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
This week is a busy one for economic news. On Wednesday, the consumer prices report is due. The headline index, which includes energy and food, is expected to rise from a 0.2-percent increase in February to a 0.3-percent increase for March on a rebound in energy prices. This will take the annual rate from 1.5 percent to 1.8 percent, which is still well below the Fed’s inflation target. This increase will be entirely due to gasoline prices. The core index, which excludes energy and food and is a better economic indicator, is expected to be lower. It should edge up from 0.1 percent in February to 0.2 percent in March but remain steady at 2.1 percent on an annual basis. Overall, if the numbers come in as expected, they would show that inflation remains under control.

On Wednesday, the minutes from the Fed’s March meeting will be released, giving us some insight into the Fed’s decision to leave rates unchanged last month. Expectations are that the notes will show that Fed members are unlikely to raise rates this year but could include more color on how they plan to stop reducing the Fed balance sheet. These notes are unlikely to move markets. But in conjunction with the price data, they could serve to reinforce market expectations of a steady rate policy.

The producer price report, due on Thursday, is expected to show similar results to the consumer prices report. The headline number is expected to rise from 0.1 percent to 0.3 percent, on energy. In this case, the annual rate should stay at 1.9 percent, due to base effects. Similarly, the core index will rise slightly, from 0.1 percent to 0.2 percent. Here, the annual rate is expected to drop from 2.5 percent to 2.4 percent. These numbers would be consistent with the consumer price report and have the same meaning.

Finally, the University of Michigan consumer confidence survey, released on Friday, is expected to drop slightly from 98.4 in March to 98 in April. Although gas prices have risen, the stock market has done well and job growth has rebounded, which should leave confidence steady. 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 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
• The 10-year Treasury was as low as 2.33 percent late last week. But it opened at 2.44 percent early Monday morning. Meanwhile, the 2-year opened at 2.29 percent, and the 30-year opened at 2.84 percent. Last week, rates continued to drop across the curve, but they bounced later in the week and opened higher than last Thursday’s lows. The curve is approaching inversion, with short rates essentially pinned at the federal funds level.
• The three major U.S. markets were all up last week as they continued to process both the dovish tone from the Federal Reserve (Fed) and positive updates on U.S.-China trade relations. Following the Fed’s more dovish commentary and plans to end the balance sheet runoff in September, investors turned to a risk-on approach. The top three performing sectors were industrials, materials, and consumer discretionary. Those sectors that were among the worst performers were utilities, communication services, and energy.
• U.S. Treasury Secretary Steven Mnuchin traveled to Beijing to meet with China’s Vice Premier Liu He. Mnuchin stated that the task was constructive, and Bloomberg reported that part of the focus of the meeting was to ensure that the deal text had no discrepancies.
• Last week saw the release of a number of important economic data releases. On Tuesday, February’s housing starts came in much worse than expected, with a monthly drop of 8.7 percent against expectations for a decline of only 0.8 percent.
• Tuesday’s Conference Board Consumer Confidence Index also disappointed, with a decline from 131.4 to 124.1. Consumer confidence was expected to show a modest increase, so this pullback is worth monitoring.
• On Thursday, the third and final read of fourth-quarter gross domestic product growth was released. The economy grew at an annualized 2.2-percent rate. This result was down from the 3.4-percent rate in the third quarter.
• Finally, on Friday, we saw the release of February’s personal income report and January’s personal spending report. Income rose by 0.2 percent, while spending grew by 0.1 percent. While this growth is modest in absolute terms, both measures had declined in the preceding months, so any growth is welcome.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
This week is a busy one for economic data and should provide further insight on whether the recent spate of weak data is likely to continue.

On Monday, the retail sales report is expected to show faster growth at the headline level. It should rise from a gain of 0.2 percent in January to a 0.3-percent gain for February, boosted by higher gas prices. Core retail sales, which exclude autos, are expected to slow substantially, from a 0.9-percent gain to a 0.4-percent gain. Overall, while sales continue to grow, the growth rate has weakened after a significant pullback in December and will likely signal slower first-quarter growth.

Also on Monday, the Institute for Supply Management (ISM) Manufacturing index is expected to rise slightly, from 54.2 in February to 54.3 for March. This figure would suggest that a slowdown in global demand has not yet significantly damaged the U.S. manufacturing sector. 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.

On Tuesday, the durable goods orders report is also expected to disappoint at the headline level. It should drop from a gain of 0.3 percent in January to a decline of 1.2 percent for February, on a significant drop in aircraft orders. That said, this is an extremely volatile series that depends largely on aircraft. The core index, which excludes transportation and is a better economic indicator, is expected to rise from a decline of 0.2 percent in January to a gain of 0.3 percent for February. There may be some downside risk here on a weakness in business investment plans.

On Wednesday, the ISM Nonmanufacturing index is expected to pull back from 59.7 in February to 58 in March. This result would still leave it at a very healthy level on strong domestic demand for services. This is a diffusion index, where values above 50 indicate expansion and below 50 indicate contraction. As such, this would be a very healthy figure despite the recent pullback, suggesting continued growth.

Finally, on Friday, the employment report is expected to show that job growth recovered to 175,000 for March, up from a surprise decline to 20,000 in February. There may be some downside risk here, which could indicate job growth is finally slowing. The unemployment rate is expected to hold steady at 3.8 percent. Wage growth is expected to pull back from 0.4 percent to 0.2 percent, although that would still leave annual growth steady at 3.4 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  
• The 10-year Treasury was as low as 2.41 percent late last week before opening at 2.45 percent on Monday. Yields across the curve were lower, with the 2-year Treasury opening at 2.31 percent and the 30-year Treasury opening at 2.89 percent. As a result of slowing global growth, the dovish stance from the Federal Reserve (Fed), and tariff and debt concerns, investors have piled into more safety assets over the last couple of weeks. For the first time in this cycle, the 3-month yield was higher than the 10-year yield. That yield differential was small (–2.974 basis points) and reversed on Monday morning; however, it has become increasingly likely that we will see a full curve inversion at some point.
• The three major U.S. markets were down last week, as global growth fears led to a strong Friday sell-off. This result can be attributed to both the yield curve inversion and a weak Purchasing Managers’ Index (PMI) report out of Germany. The German PMI report, which has dropped significantly since its peak in 2017, marked the lowest level since 2012 for German manufacturers. The report stokes fears that China is not the only global marketplace that is seeing a slowdown in growth.
• The top-performing sectors on the week were consumer discretionary, REITs, and consumer staples. The worst-performing sectors were materials, industrials, and financials, which struggled in light of the yield curve inversion.
• There was no change in the National Association of Home Builders Housing Market Index during the month. It remained at 62.
• The Federal Open Market Committee (FOMC) rate decision came on Wednesday, with the Fed deciding not to change rates. The Fed dot plot indicated no rate hikes for the remainder of 2019. In addition, the Fed released a plan to begin to slow the pace of the balance sheet wind down in May and to finish winding down by the end of September. All of these moves were interpreted as more dovish than the market expected.
• On Friday, existing home sales showed strong gains of 11.8 percent. This result was well above the expectation for a 3.8-percent gain and reversed the previous month’s decline of 1.4 percent.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
This week will be a busy one for economic news, including looks at housing, trade, confidence, and consumer income and spending.

The data flow starts on Tuesday, with the release of the housing starts report. Starts are expected to drop back slightly, from 1.23 million annualized in January to 1.21 million in February. This would still be a very good result, as the January number was a nine-month high. There is likely to be some downside risk, however, as single-family building permits dropped back last month, and multifamily starts are likely to remain steady. If the numbers come in even close to expectations, it would be a positive signal for the industry and economy.

Also on Tuesday, the Conference Board will release its consumer confidence survey. It is expected to tick up a bit, from 131.4 in February to 132 in March. This result would continue the index’s rebound after a recent decline, leaving it at a relatively high level historically. With gas prices and the stock market rising during the month, there may be some upside risk here.

On Wednesday, the international trade report will be released. It is expected to show an easing in the trade deficit, from $59.8 billion in December—which was a 10-year high—to $57.3 billion in January. The improvement should come from a rise in Chinese soybean purchases and a drop in imports, rather than a rise in exports. Overall, trade is likely to be a drag on growth in the first quarter if the numbers come in close to expectations.

Finally, on Friday, the personal income and spending report is expected to show renewed growth in income, up from a drop of 0.1 percent in January to a gain of 0.3 percent for February. Last month’s drop was technical rather than fundamental—a timing issue related to dividend payments—so continued growth would be a positive sign. Personal spending is expected to rebound even more, from a 0.5-percent drop in December to a 0.3-percent gain in January. The difference in timing between the reports here is due to the ongoing catchup from the government shutdown. Again, the rebound would be consistent with renewed confidence and would be a positive sign.

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  
• The 10-year Treasury was down on Monday morning, opening at 2.58 percent. This is its lowest level since January 3, when it hit 2.55 percent. The 2-year, 5-year, and 30-year Treasuries opened at 2.43 percent, 2.40 percent, and 3.02 percent, respectively. The short end of the curve remains inverted, with the 2-year Treasury yielding more than the 5-year. The long end of the curve remains about 60 basis points over the short end of the curve.
• The markets were up across the board last week. The Dow Jones Industrial Average lagged, as Boeing fell by more than 10 percent following the second crash of its new 737 MAX 8 aircraft.
• The news surrounding the U.S.-China trade talks was relatively quiet, with expectations for a deal to be pushed out to at least April. Chinese Premier Li Keqiang suggested that additional monetary, regulatory, and stimulus measures would be taken to counter recent pressures on the country’s economic growth. This follows a dovish trend from central banks worldwide.
• Last week was packed with economic data releases. On Monday, January’s retail sales data came in better than expected, with 0.2-percent growth. This was a strong result following a decline in December.
• On Tuesday, February’s Consumer Price Index was released. Consumer inflation grew by 0.2 percent during the month, leading to an annual increase of 1.5 percent. On Wednesday, the Producer Price Index had similar results, with a 0.1-percent monthly growth rate leading to an annual increase of 1.9 percent.
• On Thursday, new home sales in January disappointed, falling by 6.9 percent. Economists expected modest growth, so this large decline is concerning.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
Next week will be a slow one for economic news, consisting of housing reports and the regular meeting of the Federal Reserve (Fed).

On Monday, the National Association of Home Builders will release its industry survey. It is expected to rise from 62 to 63, reflecting continued moderate confidence in the homebuilding market. With interest rates declining, affordability is showing improvement, making such an increase seem pretty reasonable.

On Wednesday, the regular meeting of the Federal Open Market Committee will conclude with the release of the policy announcement and a press conference with Fed Chair Jerome Powell. Expectations are for the Fed to hold steady on interest rates, but the focus will be on whether and how the future projections for economic growth and rate changes have shifted. Weak inflation data from last week, as well as slowing economic growth in the first quarter, support expectations that the Fed will dial back its projects and that rate increases will remain on hold.

On Friday, the existing home sales report is expected to increase from $4.9 million to $5.1 million in sales on an annualized basis. Such an improvement would indicate that the housing market is stabilizing after a slowdown. This result would be consistent with the rise in affordability and would be a positive economic indicator.

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®