For the week ending 3-15-19
Stocks displayed solid momentum during the week and all the major indices ended with impressive gains. The technology sector performed best, taking the leadership away from cyclical and defensive stocks that had been the primary market drivers since the beginning of the year. Energy stocks also significantly outperformed this week as inventory data was better than expected and crude oil demand increased more than forecasted. Industrials lagged, weighed down by a sharp decline in Boeing shares following a second fatal accident involving its new 737 Max 8 airliner. The strong performance of tech shares lifted the NASDAQ Composite past the Dow Jones and S&P 500 for the first time this year. The U.S. – China trade war was, once again, a focus of investor attention. This week it was a statement by the head of China’s central bank that China would not devalue its currency to boost exports or to use it as a weapon in trade disputes that lifted sentiment and gave investors free reign to chase a stocks. Some analysts attributed the week’s upward trend to “FOMO”, an internet acronym that stands for “Fear of Missing Out.” Many traders moved money to the sidelines during the deep correction of November & December and are jumping in late as the rally in the first quarter of 2019 gains steam.
The week’s economic data continued a recent pattern, with the housing and manufacturing sectors pulling back but consumer sentiment and spending showing no signs of slowing down. New home sales dropped nearly 7% in January, well below estimates for only a small decline.
Although there were some bright spots, overall industrial production failed to rebound in February as much as hoped, manufacturing output declined for a second straight month and a gauge of regional factory activity fell more than expected. Core durable goods orders, however, rose in January by the most in six months. But consumer spending, which makes up 68% of U.S. GDP, remains strong. January retail sales rose solidly, erasing fears that December’s plunge might auger a trend of slower spending. The University of Michigan’s preliminary gauge of consumer sentiment for the month of March also rebounded more than expected.
China worries, the mixed U.S. economic signals, and a softer-than-expected inflation reading on Tuesday sent the yield on the benchmark 10-year Treasury note under 2.6%, which is its lowest level since a brief plunge at the start of January. Lower interest rates are a two-edged sword as they pertain to the economy. On the one hand, when money is less expensive, assets prices like stocks and real estate tend to rise. But on the other hand, lower interest rates mean that bond traders think that the economy will not grow as fast.
For the week, the Dow Jones rose 399 points to 25,849 (1.6%); the NASDAQ was up 281 points to 7,689 (3.8%); and the S&P 500 added 79 points to 2,822 (2.9%).
Oil rose $2.50 to $58.50/bbl. Gold was unchanged at $1,302/oz.
The yield on the 10 yr. Treasury was also steady at 2.6%.
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