Economic Market/Portfolio Happenings
Hello and welcome to this week’s Jones Financial Blog! Our goal at Jones & Associates is to help keep you up to date with interesting current economic/market happenings as well as some proprietary portfolio happenings. Knowledge is power and thought we would share some of ours with you. Enjoy!
For the week ended March 22, 2019.
Stock indices declined across most of the world last week, with the S&P down 0.75%, the NASDAQ off 0.58% and the Russell 2000 dropping 3.05%. Overseas, the developed markets (MSCI EAFE) was down 0.33% while the emerging markets (MSCI EM) rose 0.24%. (1) The Friday release of manufacturing data for the US and Europe disappointed, pushing prices down more dramatically in those markets at the week’s end. The leading sectors in the S&P were consumer discretionary and REITs while financials and materials lagged.
On Wednesday the Federal Reserve officials agreed to leave the fed funds interest rate unchanged, as widely expected, in the 2.25-2.50% range. Seeing slower growth and softer inflation ahead, Fed officials said Wednesday they could be patient about what further adjustments to make to interest rates, apparently willing to hold the Fed funds rate flat for the next six to nine months. (2)
With disappointing manufacturing data on Friday (see below), interest rates fell and the yield curve inverted meaning 3 month government bills had a higher yield than 10 year treasuries. With rising demand for the benchmark 10-year US government bond, prices rose and the yield dropped 15 basis points to 2.44%.1 This is a rate that has not been seen since the start of 2018. (3) While a yield curve inversion has preceded recent recessions, it takes about 3 months of consistent inversion to make an impact. Even then, the lead time has been very inconsistent—anywhere from one to two years after the curve flips upside-down. (4)
Falling interest rates are a plus for the housing market: The 30-year fixed-rate mortgage averaged 4.28% in the March 21 week, a 13-month low. The 15-year adjustable-rate mortgage averaged 3.71%, while the 5-year adjustable-rate mortgage averaged 3.84%, unchanged during the week. (5)
Sales of previously-owned homes shook off the winter blahs as mortgage rates remained subdued, incomes kept growing, and more inventory helped the housing market regain some balance. Existing home sales surged 11.8% month over month—the most in 3 years – but down 1.8% year over year. Average prices were up 3.6%. (6) Rising inventory helped drive sales yet it still remains tight. At the current pace of sales, it would take 3.5 months to exhaust available supply, versus the long-term average of 6 months.
With 85% of purchasing managers responding, the IHS Markit “flash” purchasing managers index (PMI) for U.S. manufacturing in March fell to a 21-month low, while the services PMI weakened to a two-month low. The flash manufacturing PMI fell to 52.5 from 53 in February, while the services PMI fell to 54.8 from 56. Note any reading above 50 indicates improving conditions. Over In Europe, flash manufacturing PMIs disappointed as well. Overall Eurozone PMI was reported at 47.6 versus an expected reading of 49.5, Germany at 44.7 versus the consensus 48 and France at 49.8 versus the 51.4 reading that was forecast for March. (7)
Proprietary portfolio happenings:
Amazon.com (AMZN), a G33 and Core Select holding, shares rose 6.2% last week in an apparent shift of investors’ attention toward large capitalization, higher quality names.
Darden Restaurants (DRI), a G50 holding, reported sales and earnings that beat expectations and raised guidance for the full year ending May by a rate exceeding the quarterly beat. (8) The company saw several analysts raise target prices. Shares rose 5% for the week.
PDC Energy (PDCE), an Energy Sector Focus holding, saw shares of this Colorado oil and gas driller rise 11.4% last week spurred by actions of an activist investor to increase earnings and boost shareholder returns. (9)
Did you know…
Feather bowling is a Belgian sport played on a hard dirt packed court (lane) that is about 60 feet long by 8 feet wide. The surface is elliptical in shape, dipping about 2 feet in the center. Large wooden disks are rolled down the court, attempting to land next to a feather that’s implanted in the dirt near the far end of the lane. Similar to Italian bocce ball and Canadian curling, the first team up tries to surround the feather then, the other team attempts to break up ‘blockers’ and weave around opponents’ balls to land closer. The best known feather bowling courts are located inside Detroit’s Cadieux Café.
Sources: (1) 1 JP Morgan Weekly Market Recap 3/25/19, (2) Federal Open Market Committee Meeting 3/20/19, (3) US Treasury, (4) Barron’s: What the Yield Curve Inversion Really Means…” 3/22/19, (5) Freddie Mac 3/21/19, (6) National Association of Realtors, (7) IHS Markit press release 3/22/19, (8) Darden Restaurants press release 3/21/19, (9) Kimmeridge Energy press release 3/7/19