Landscape Image [Size 960 x 300]

comerica-economics-023_960x300

Portrait Image [Size 620 x 415]

comerica-economics-chart-graph-23_620x415

Short Description (Double click to edit..)

Last week, from the surface, the markets looked calm to the point of boredom. However...



Weekly Market Overview | April 15, 2019

April 15, 2019
By Peter Sorrentino, Chief Investment Officer

Last week, from the surface, the markets looked calm to the point of boredom. However, the reality again was something quite different. Were it not for Friday’s rally, the market would have been down for the week. Friday’s run was sparked by the relatively dovish tone of the Federal Reserve Bank minutes from its March 19-20 meeting and positive headlines for major index companies: Disney, Chevron and J.P. Morgan. The major U.S. indices managed to all post fractional gains, led by the S&P Mid-Cap 400® Index at 0.8%, followed by the S&P 500® Index with 0.5%, and bringing up the rear, the S&P Small-Cap 600® Index with 0.4%. But again, just below the surface it was a very different story, as the gulf between winners and losers grew even larger. Last week’s winning sectors were Financials (+2%), Communication Services (+1.5%) and Technology (+1.2%). On the negative side of the ledger were Health Care (-2.4%) and Energy (-0.1%), with the balance of the market scattered in between. International markets, on the surface, appeared to mirror the U.S. market, as the smaller MSCI Emerging Market Index led the MSCI EAFE® Index (+0.4% to +0.2%). The reason here, however, was the seeming lack of a coordinate response to slowing economic growth in Western Europe from France and Germany. In the commodity market, it was another good week for energy, as crude oil rose another 1.3%, pushing gasoline prices up 3.5%. Industrial metal prices added 1.3%, thanks to better-than-expected export data from China. Prices for U.S. agricultural commodities slipped half a percent, thanks to a dearth of data releases.

While we await the release of first quarter GDP data, we had the opportunity to receive an update from Comerica’s Chief Economist, Dr. Robert Dye. Dr. Dye stressed that we should expect to see a deceleration in the rate of GDP expansion due to the following factors: 1) the drag exerted by the government shutdown, 2) the negative impact of the inventory drawdown as U.S. companies sell off their excess inventory accumulated during the second half of 2018 ahead of trade sanctions, and 3) the deceleration of both housing activity and price escalation. It is this last point that potentially has significant implications for the balance of 2019. Housing activity drives a considerable volume of consumer discretionary spending and has, historically, been a reliable indicator of future consumer spending. The typical lag between a slowdown in housing activity and a corresponding decline in consumer spending has been six months. We will be monitoring second quarter residential housing activity closely for signs of rebound, or a continuation of the first quarter trend. Dr. Dye pointed out that the Federal Reserve Bank’s pivot during the first quarter to a more accommodative tone served to reduce home mortgage rates, which, when combined with the continued positive trends in employment and earnings, have the potential to boost the residential housing market. Another emerging trend that could impact the equity market is that very same strong employment and wage environment. Thus far, companies have found very little pricing power and, as a result, have been absorbing the rising labor cost by accepting narrowing profit margins. If this trend persists, it is likely we could see a replay of the rolling profit recession, last experienced in the first half of the 1990s. This is one of the catalysts behind our late cycle business spending thesis, as companies look to substitute capital for labor in a bid to defend, or even restore, profit margin growth. Dr. Dye characterized the immediate risk of recession as low but stressed there are potential imbalances building in the form of a global slow down, impending fiscal contraction and a potential profit recession. In the meantime, U.S. exports continue to expand, productivity growth has been gathering momentum and, considering recently-announced mergers and acquisitions, business confidence remains high.

 

For a PDF version of this publication, click here: 04.15.19_WeeklyMarketOverview

 

NOTE: IMPORTANT INFORMATION
Source: Unless otherwise noted, all statistics herein obtained from Bloomberg.
This is not a complete analysis of every material fact regarding any company, industry or security. The information and materials herein has been obtained from sources we consider to be reliable, but Comerica Wealth Management does not warrant, or guarantee, its completeness or accuracy. Materials prepared by Comerica Wealth Management personnel are based on public information. Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of Comerica Wealth Management, including investment banking personnel. The views expressed are those of the author at the time of writing and are subject to change without notice. We do not assume any liability for losses that may result from the reliance by any person upon any such information or opinions. This material has been distributed for general educational/informational purposes only and should not be considered as investment advice or a recommendation for any particular security, strategy or investment product, or as personalized investment advice. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The investments and strategies discussed herein may not be suitable for all clients. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Comerica Wealth Management consists of various divisions and affiliates of Comerica Bank, including Comerica Bank & Trust, National Association; World Asset Management, Inc.; Comerica Securities, Inc.; and Comerica Insurance Services, Inc. and its affiliated insurance agencies. World Asset Management, Inc. and Comerica Securities, Inc. are federally registered investment advisors. Registrations do not imply a certain level of skill or training. Comerica Bank and its affiliates do not provide tax or legal advice. Please consult with your tax and legal advisors regarding your specific situation. Non-deposit Investment products offered by Comerica and its affiliates are not insured by the FDIC, are not deposits or other obligations of or guaranteed by Comerica Bank or any of its affiliates, and are subject to investment risks, including possible loss of the principal invested. Past performance is not indicative of future results. Information presented is for general information only and is subject to change.

The S&P 500® Index, S&P MidCap Index, S&P 600 Index and Dow Jones Wilshire 5000 (collectively, “S&P® Indices”) are products of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and Standard & Poor’s Financial Services, LLC and has been licensed for use by Comerica Bank, on behalf of itself and its Affiliates. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). The trademarks have been licensed to SPDJI and sublicensed for certain purposes by Comerica Bank, on behalf of itself and its Affiliates. Nothing herein is sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”) or Standard & Poor’s Financial Services LLC. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC make any representation or warranty, express or implied, to the owners of the content herein, or any member of the public regarding the advisability of investing in securities generally or in particular strategies or the ability of any particular strategy to track general market performance. SPDJI and Standard & Poor’s Financial Services, LLC only relationship to Comerica Bank, on behalf of itself and its Affiliates with respect to the S&P® Indices is the licensing of the Indices and certain trademarks, service marks, and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P Indices are determined, composed and calculated by S&P Dow Jones Indices or Standard & Poor’s Financial Services, LLC without regard to Comerica Bank and its Affiliates or any of the content herein. S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation to take the needs of Comerica and its Affiliates or the owners of any of the content herein into consideration in determining, composing or calculating the S&P Indices. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC are responsible for and have not participated in the determination of the prices, and amount of any particular strategy or the timing of the issuance or sale of any particular strategy or in the determination or calculation of the equation by which any particular strategy is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation or liability in connection with the administration, marketing or trading of any particular strategy. There is no assurance that any particular investment product based on the S&P Indices will accurately track index performance or provide positive investment returns. SPDJI is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.

NEITHER S&P DOW JONES INDICES NOR STANDARD & POOR’S FINANCIAL SERVICES, LLC GUARANTEES THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE WAM STRATEGIES OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNCATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY COMERICA AND ITS AFFILIATES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDICES OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR STANDARD & POOR’S FINANCIAL SERVICES, LLC BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD-PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND COMERICA AND ITS AFFILIATES, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.

“Russell 2000® Index” is a trademark of Russell Investments, licensed for use by Comerica Bank and World Asset Management, Inc. The source of all returns is Russell Investments. Further redistribution of information is strictly prohibited.

MSCI EAFE® is a trade mark of Morgan Stanley Capital International, Inc. (“MSCI”).

FTSE International Limited (“FTSE”) © FTSE 2016. FTSE® is a trade mark of London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under license. All rights in the FTSE Indices vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE Indices or underlying data.