U.S. Economic and Market Highlights

The Economy:

• Investor concerns include: Slowing growth, Geopolitical issues, and Trade and tariff uncertainties.
• Growth prospects in the Euro Zone received a downbeat assessment from the European Central Bank who downgraded 2019 GDP outlook from 1.7% to 1.1%. The U.S. economy added significantly fewer jobs than average in February due to the government shutdown, while the unemployment rate dropped to an historically low 3.8%.
• Consumer sentiment was mixed in March as the Federal Reserve looked to postpone further rate hikes and downplay recession fears as the ten-year and three-month portion of the U.S. Treasury yield curve inverted in March for the first time since 2007. This is a closely watched recession indicator.
• Brexit negotiations failed as the U.K. Parliament rejected, for the third time, Theresa May’s hard Brexit proposal. EU leaders have lost patience with the U.K.’s decision-making process and will likely extend the deadline for only a couple of weeks. During this time the U.K. Parliament will likely offer suggestions for a softer, more EU friendly Brexit plan. But, at this point anything is possible.
• The trade war between the U.S. and China continues to have a negative impact on manufacturing output which fell for a second straight month in February. However, at the end of March the talks are described as constructive and proposals are being considered on major outstanding items.
• Core Personal Consumption Expenditure (PCE) price index, the Fed’s preferred inflation measure, is still under their target at 1.9% year over year. But there is a potential for “wage-push” inflation created by low unemployment, where employers need to pay more in wages and then pass higher costs on to consumers. U.S.Wage inflation was 3.4% in February, the largest annual increase since the financial crisis.

Equities:

• The S&P 500 Stock Index continued its 2019 rally as volatility returned in March ending the month with the best quarterly return since 2009 and best first quarter since 1998. The index’s 13.1% return in the first quarter erased most of its 13.5% fourth quarter decline.
• The technology sector bounced back with a 6.9% return in February and 14.3% year-to-date return, which made it the best performing sector in February and second best this year. Strong earnings and sales growth continue to support the sector.
• Fourth quarter corporate earnings remained high with double-digit-growth for the fifth consecutive quarter. However, increased earnings are expected to slow in 2019. Capital expenditures in the U.S. increased in 2018 because of higher profits, due in part, to the significant reduction in corporate income tax rates.
• The opposite occurred in the U.K. as GDP growth slowed to a six-year low level of 0.2% on a quarterly basis in 4Q 2018, as the uncertainty over Brexit stalled progress and hampered corporate decision making.

Fixed Income:

• The ten-year Treasury bond rate declined in March to its lowest level in the past year resulting in rally for bonds. In the U.S. the ten-year slipped below 2.40% at the end of the month, while the ten-year bond rate in Germany went below zero.
• Emerging market bond returns climbed back into positive territory this past month as the U.S. Dollar exchange rate showed signs of leveling off against other currencies. Emerging market leverage is still far lower than more developed markets which make them less vulnerable to a credit crisis.
• Investment-grade corporate bond prices held their values as corporate balance sheets and earnings remain strong. The spread between investment grade and high-yield bonds widened due to higher rates on bonds with lower credit quality.

Other:

• Global Real Estate (REIT) indices outpaced traditional equity indices in the one-year period ending in February, while global hedge funds and commodities produced flat returns over this period.
• Energy-related carbon emissions grew worldwide in 2018 by 1.7% to a historic high according to the International Energy Agency, in part because of adverse weather which increased the demand for heating and cooling. In America emissions were up by 3.1%; in China emissions were up by 2.5%; and in Japan, Britain, France, and Germany emissions declined.

 The above was prepared for informational purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security/instrument or to participate in any trading strategy. Past performance is not indicative of future results.