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Week in Review

Week Ending: March 9, 2018

Recap & Commentary

Stocks rebounded from the previous week’s losses, despite President Trump enacting 25% and 10% import tariffs on steel and aluminum, respectively. The tariffs are scheduled to take effect in 15 days, and affected countries are expected to make a case for exclusion (negotiate “carve-outs”) over the next two weeks. Canada and Mexico were notable exclusions which represented a softening of Trump’s original stance. Concerns remain that the tariffs will lead to trade wars that could dampen economic growth. At the sector level, the tech-heavy Nasdaq Composite index performed best and set a new intraday high on Friday. Small cap stocks also performed especially well.

An upbeat February jobs report showed that the economy added 313K jobs; much higher than the 205K expectation, according to Bloomberg. Data from the prior two months was also revised upward. Conversely, Y/Y growth in hourly earnings came in at a meager 2.6%, lower than the 2.9% projection and last month’s figure.
Gary Cohn, the top economic advisor to the President, resigned from his post after refusing to support the President’s tariff plan, according to insiders. This move had the effect of increasing the perception that the White House will move forward with more protectionist policies.

Notably, President Trump agreed to meet with North Korea’s Kim Jon Un by May of this year, per commentary from South Korean National Security Council Chief Chung Eui-yong. While this tentative agreement was largely viewed as positive, the Kim dynasty has a history of dangling the prospect of a negotiated settlement on its nuclear arsenal, to then later walk away after receiving concessions.

Economic Bullet Points

At the headline level, data out of the factory sector was weaker than expected. Factory Orders closed out what was a relatively lackluster January for manufacturing. The 1.4% M/M decline was the first since July of last year. An outsized dip in the volatile aircraft component was the largest contributor to the decline, but core orders fell as well, which doesn’t bode well for future equipment spending, an input to GDP.  

Data outside of the factory sector pointed to an accelerating economy. The ISM Non-Manufacturing Index topped consensus expectations, with strength in most components. Demand from abroad continued to push higher in February, a plus for this reading, but a drag on International Trade. The U.S. trade deficit hit a 9-year high in the month. Oil played an outsized role in the widening deficit, and though volatility is expected to subside, net exports will likely be a drag on Q1 GDP.

Yet another month of exceptional strength in the labor market lifted expectations for four Fed rate hikes this year. February’s Employment report saw nonfarm payrolls rise well ahead of even high-end expectations. This, coupled with modest wage gains, is supportive of solid (2.5 – 3.0%) growth in 2018, and continued consumer spending. Additionally, both prior months were revised higher. The unemployment rate held steady at 4.1%. Despite all of this strength, wage inflation remained subdued, up just 0.1% in the month, with the 2.6% Y/Y rate 0.3% below last month’s annualized rate.

Of Note

The S&P 500 bull market celebrated its 9-year anniversary on Friday, March 9, 2018, having achieved 202 all-time closing highs throughout the 9 years and having gained 398% over the period. The 9.5-year bull run from October 1990 to March 2000 saw 308 record closing highs. 

Market Indices Week of 3/9

S&P 500                         3.5%

Russell 2000                4.2%

MSCI EAFE                    1.8%

MSCI EM                        2.1%

Commodities             -0.2%

Barclay’s Agg.             -0.1%

US Dollar Index           0.2%

10-Yr Yield                   2.89%

WTI Oil ($/bl)                  $62

Gold ($/oz)                   $3,321


The Week Ahead

  • NFIB Small Bus. Optimism
  • Consumer Price Index
  • Producer Price Index
  • Retail Sales
  • Business Inventories
  • Jobless Claims
  • Philly Fed Business Outlook
  • Empire State Mfg. Survey
  • Housing Market Index
  • Housing Starts
  • Industrial Production
  • Consumer Sentiment
  • Jobless Claims

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