While last week marked just the second down week of the year for the S&P, many individual names have been consolidating since mid-February. The equity markets declined, with the worst 1-week performance this year, on mixed economic data. For last week the Russell 2000® Index, the weakest performer, fell 4.26%, followed by Nasdaq (-2.46%), the Dow Jones Industrial Average (-2.21%), and the S&P 500® Index (-2.16%.) Low trading volumes suggest that many investors are sitting on the sidelines, awaiting further news on geopolitical concerns.Trade negotiations continued in China this week with no new developments. Chinese officials said that the work to prepare for a possible Trump/Xi summit has not yet started; the White House clarified that the previously discussed meeting at Mar-a-Lago has not yet been officially scheduled. While disappointing, the news reflects both the complexity of negotiations and posturing by both sides to gain a favorable advantage. These statements are reminiscent of the posturing on the NAFTA negotiations prior to the announcement of a final agreement. The overriding issue is the pressure, both economic and political, for both leaders to finalize an agreement.
February’s jobs report badly missed expectations as the economy added only 20,000 jobs (economists expected 175,000); 12,000 jobs were added to December’s and January’s reports (originally 222,000 and 304,000). The government shutdown and severe winter weather may have contributed to the disappointing results. Still, unemployment fell from 4.0% to 3.8%. A less publicized but important indicator of economic growth is productivity; the quarterly measure rose 1.9% in the 4th quarter, and 2.2% for the April through December period, the highest level since 2010. Economists have expressed concerns that low productivity would hamper continued economic expansion. Wages also picked up nicely last month with wage gains noted at 3%, the largest increase in almost 10 years. China reported a 20.7% year-over-year decline in February exports; the data may be somewhat distorted by the timing of the Chinese New Year holidays. Also, the European Central Bank announced plans for a pause in interest rate and balance sheet normalization as the ECB lowered estimates for 2019 economic growth from 1.7% to 1.1%. The Organization for Economic and Cooperation Development, in citing trade disputes and slower growth in China and Europe, cut its estimates for 2019 global growth from 3.5% to 3.3%. And, Brexit negotiations have yet to produce any significant changes; a British Parliamentary vote is scheduled for March 12th.
The first quarter of 2019 started impressively; recently, though, possible catalysts for continued upward momentum remain murky. The strong dollar and high trade deficits, both of which reflect the relative strength of the U.S. economy, have also weighed on the markets. First quarter earnings will likely reflect seasonal weather disruptions; investors, though, will focus on developing trends for the remainder of the year. Volatility is likely to remain elevated in the run-up to the earnings season as economic and political headlines impact the market.
Source: Pacific Global Investment Management Company
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
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Brian Amidei is Coachella Valley's only Barron's Magazine Top 1,000 Advisor in 2013 and 2014!
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