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Market Summary

Despite more data showing a slowdown in manufacturing activity around the globe, U.S. equities rebounded strongly last week, posting their best weekly gains on the year. For the week, the NASDAQ jumped 3.8%, while the Dow and S&P recorded gains of 1.6% and 2.9%. The rebound was partially driven by increasing expectations that the Federal Reserve will remain on pause with interest rate hikes this year, or perhaps even cut rates, after inflation data continued to weaken this past week and fall away from the Fed’s 2% target. Meanwhile, U.S. 10-year Treasury yields fell to just 2.59% as investors bought up government bonds due to fading long-term inflation expectations.

U.S. industrial production grew just 0.1% month-over-month in February, which was below expectations for 0.4% growth, after a weak -0.4% growth reading in January. Germany and China also released disappointing manufacturing data last week showing that their manufacturing sectors continue to contract. However, the U.S. did also release better than expected readings in consumer and small business confidence, retail sales, residential construction, and job openings, which all helped to lift investor spirits as they point to a healthy U.S. consumer.

The final vote from the U.K. parliament this past week resulted in lawmakers deciding to delay Britain’s departure from the European Union after Prime Minister Theresa May’s proposed Brexit deal was rejected for a second time. The possibility of leaving the E.U. without a deal was also rejected, which provided some relief to market participants, but it is looking more likely that there will be an extended period of uncertainty on this issue.

Looking to the week ahead, investors will be keenly focused on the Federal Reserve meeting on Wednesday for any indication of how long the current pause in interest rate hikes will last. According to CME Group, markets are pricing in a 70% probability that rates will remain unchanged for the rest of the year and a 30% probability that rates will be cut by at least 0.25% this year.

Economic Highlights:

Inflation: Annual growth for the Consumer Price Index (CPI) came in below expectations in February with a 1.5% reading versus the consensus and prior month reading of 1.6%. The headline number (excluding food and energy) was 2.1%, which was also below consensus expectations of 2.2%.

Consumer Sentiment: The University of Michigan’s Index of Consumer Sentiment rebounded to 97.8 for March, above expectations of 95.6 and February’s reading of 93.8, partially driven by the rally of financial markets year-to-date and falling inflation expectations that would boost real income.

US Economy – The Week Ahead

Tuesday 3/19/2019

  • U.S. Durable Goods Orders Month-over-Month Growth (Final) – Consensus Estimate: 0.4%, Prior Month: 1.3%

Wednesday 3/20/2019

  • Federal Open Market Committee (FOMC) Meeting – No rate hike expected

Thursday 3/21/2019

  • Initial Jobless Claims – Consensus Estimate: 225,000 (-1.7% WoW), Prior Week: 229,000 (2.9% WoW)
  • Leading Economic Indicator Index (Month-over-Month) – Consensus Estimate: 0.20%, Prior Month: 0.0%

Friday 3/22/2019

  • Existing Home Sales – Consensus Estimate: 5,125K (3.7% MoM), Prior Month: 4,940K (-1.2% MoM)
  • Wholesale Inventories Month-over-Month Growth – Consensus Estimate: -0.3%, Prior Month: 1.1%
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