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Week in Review

Week Ending: Friday, March 16, 2018

Recap & Commentary

Markets ended the week lower, as further reshuffling of White House staff and trade jitters appeared to take their toll. The S&P 500 has expanded or declined by more than 1% in 9 out of the 11 weeks, YTD, as compared to 13 total such weeks in all of 2017. The Dow Jones Industrial Average (DJIA) saw a move greater than 0.5% every day last week, with sentiment indicators ranging from cautious to enthusiastic, all of which points to the likelihood that volatility will be the norm, rather than the exception, for 2018.

President Trump fired Secretary of State Rex Tillerson on Tuesday, naming Central Intelligence Agency head Mike Pompeo to lead the State Department. Trump and Tillerson’s relationship had been strained over what appeared to be differing approaches to Korea and Russia. CIA veteran Gina Haspel will replace Pompeo, the first woman to head the agency. Additionally, the President appointed Lawrence Kudlow to serve as chief economic advisor, following Gary Cohn’s departure.

Most economists don’t expect that President Trump’s proposed 25% tariff on imported steel and 10% tariff on imported aluminum will reduce U.S. employment by much, but do worry that foreign-trade disputes could escalate. The EU, UK, and Japan sought exemptions, while the administration began preparing measures against China.

This week, the Federal Open Market Committee was scheduled to meet beginning on Tuesday. On Wednesday, the Fed raised short-term interest rates. Beyond the rate hike itself, investors will be focused on new Chairman Jerome Powell’s first press release to glean information regarding the number of rate hikes expected for the remainder of the year, as well as the pace of these hikes.

Economic Bullet Points

Consumer Confidence hit a 14-year high in March. Strength was led by the current conditions component, which benefitted from growing confidence among individuals in the lower income bracket. Additionally, Business Confidence, according to NFIB Small Business Survey data, shows unprecedented confidence in the economy, as the index remains near record high-levels.

Headline CPI rose a lower-than-expected 0.2% in February, for a 2.2% Y/Y gain. Core CPI (ex-food and energy) also rose, up 1.8% on the year, just below the Fed’s 2.0% target. Headline PPI increased a greater-than-expected 0.3% last month, its largest advance since March 2012. Y/Y prices rose 2.2%. Core PPI rose 0.3% in the month, its best gain since April 2016, boosting Y/Y growth to 1.8%. Despite gains across these inflationary measures, absolute levels, when coupled with the deceleration in wage growth recorded in last week’s employment report, suggest that the Fed will not change its interest rate forecast at their upcoming policy meeting.

Housing Starts declined 7.0% to a seasonally adj. annual rate of 1.2M units. Driving this greater-than-expected decline was an acute decrease in multi-family construction which offset a second straight monthly increase in single family projects.

US Manufacturing posted robust results according to Industrial Production and various regional survey figures. Driving gains were increases in coal mining, oil and gas production, and a jump in capacity utilization.

Of Note

As of Friday, no US bank had failed YTD requiring a financial bailout from the FDIC. This it the latest point in any calendar year with no bank failures since 2006.

Market Indices Week of 3/16

S&P 500                        -1.2%

Russell 2000               -0.7%

MSCI EAFE                    0.1%

MSCI EM                       0.5%

Commodities             -0.7%

Barclay’s Agg.              0.2%

US Dollar Index           0.2%

10-Yr Yield                   2.85%

WTI Oil ($/bl)                  $62

Gold ($/oz)                   $1,142

The Week Ahead

  • FOMC Meeting
  • Existing Home Sales
  • New Home Sales
  • Durable Goods Orders
  • Jobless Claims

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