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Market Summary

The escalating trade conflict with China has changed the market dynamic and complicated what is already a difficult task for the Federal Reserve in seeking rate normalization. Markets tumbled further this past Friday after the new chairman of the Fed, Jerome Powell, said that the Fed saw no imminent need to modify its outlook on raising interest rates two more times this year, despite the recent trade and market turmoil. Investors’ fear of a trade war between the world’s largest two economies sliced more than 550 points off the Dow Jones Industrial Average on Friday, ending a short mid-week rebound. The decline in stocks was amplified by the release of weaker than expected jobs information with the Labor Department reporting that the US economy added just 103,000 jobs in March compared to expectations of 193,000 new jobs.

All 11 major sectors of the S&P 500 index dropped on Friday with the index posting a 2.2% loss on the day. The industrial sector was the hardest hit amid the trade concerns. Friday’s trading session marked the S&P 500’s ninth 1% swing up or down in the past 11 trading days and the twenty seventh such swing so far this year. This is compared to only eight daily changes of over 1% in 2017, exemplifying the heightened uncertainty. For the week, the Dow dropped 0.7%, the S&P fell 1.4%, and the Nasdaq declined the furthest to 2.1%, driven by the index’s larger weighting of technology stocks.

Fears of higher than anticipated inflation were slightly removed from the discussion last week when data showed a slow but steady rise in wages of 2.7% during the month of March. Wage inflation has been kept in check by rising workforce participation to supplement the thinning pool of available workers.

Economic Highlights

  • Employment: US unemployment remained constant at 4.1% in March. The nonfarm payroll growth reading of only +103,000 has been attributed to higher than expected growth in February (+326,000 jobs) and resulting over-optimism, poor weather conditions, and some hiring hesitation among goods producers resulting from the current trade conflict.
  • Manufacturing: The US ISM Manufacturing Purchasing Managers Index (PMI) turned out another strong monthly reading of 59.3 in March, albeit below the prior month reading of 60.8 and expectations of 60.1. All primary components of the index remained firmly in expansion territory, above 50.0. Globally, the pace of manufacturing growth also remains high but seems to be slowing.
  • U.S. Treasury Curve: The spread between the 10-year (2.78%) and 2-year (2.27%) Treasury Yield remains narrow at 0.51%. The spread will be watched closely in the coming months as a flattening yield curve is a forward indicator of economic slowdowns.

US Economy - The Week Ahead

Tuesday, 4/10/2018

NFIB Small Business Optimism Index – Consensus Estimate: 107.0, Prior: 107.6

US Producer Price Index (PPI) Year-Over-Year – Consensus Estimate: 2.9%, Prior Month: 2.8%

Wednesday, 4/11/2018

Federal Open Market Committee (FOMC) 3/21/18 meeting minutes released

US Consumer Price Index (CPI) Year-Over-Year – Consensus Estimate: 2.4%, Prior Month: 2.2%

Thursday, 4/12/2018

Initial Jobless Claims – Consensus Estimate: 230,000, Prior: 242,000

Import Price Index Month-Over-Month – Consensus Estimate: +0.1%

Friday, 4/13/2018

University of Michigan Consumer Sentiment Survey – Consensus Estimate: 100.6, Prior: 101.4

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