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.
- 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.
|MSCI Emerging Markets||0.48%||0.36%||12.69%||–2.14%|
|Fixed Income Index||Month-to-Date||Year-to-Date||12-Month|
|U.S. Broad Market||–0.06%||2.90%||5.33%|
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.