March Market Update 2019
Is the Glass Half Full or Half Empty?
- Europe manufacturing PMI signals deeper slowdown
- London markets catch a case of Europe growth flu
- European markets tumble as growth fears increase
- U.S. manufacturing PMI fell to a 21-month low
The Numbers:
The IHS Markit flash purchasing managers index for 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. Any reading above 50 indicates improving conditions. The “flash” reading is based on approximately 85% of the final number of replies received each month.
Globally, on March 22, 2019 according to IHS Markit, manufacturing activity for Germany dropped to its lowest level in more than 6 years. In France, manufacturing and services slowed down to their lowest levels in three months and two months, respectively. For the Euro zone as a whole, manufacturing fell to its lowest level since April 2013.
“A gap has opened up between the manufacturing and service sectors, however, with goods-producers and exporters struggling amid a deteriorating external environment and concerns regarding the impact of trade wars. The survey is consistent with the official measure of manufacturing production falling at an increased rate in March and hence acting as a drag on the economy in the first quarter” — Chris Williamson, chief business economist at IHS Markit.
The Recurring Concerns Are No Match for Market Fundamentals
Federal Reserve Chair Jerome Powell said on “60 Minutes” that the likelihood of recession was small; House Speaker Nancy Pelosi remarked that impeachment would be fruitless without “compelling evidence;” retail sales rose after two months of declines; and President Donald Trump requested $200 billion in infrastructure funds in his 2020 budget.
The hard-data reports bolstered the case for confidence in the American economy. Durable goods orders continue to reflect healthy spending and business investment trends; small-business confidence remains elevated and optimistic; inflation by any measure is low and, together with low prices at the pump, boosts consumers’ purchasing power.
Let’s talk about the Dow & S&P 500. The Dow holds just 30 stocks and each stock’s weight (or allocation) in the index is based on its price alone. Compare that to the S&P, which weights its 500 (or so) stocks based on market capitalization (or stock price times the number of shares outstanding).
That may seem like a technicality—price-weighted vs. market cap—but it can lead to some material differences. And during the second week of March, Boeing was a large cause for the divergence in performance between the two market measuring sticks.
Boeing, which fell about 11% on Monday the 11th and Tuesday the 12th following the tragic plane crash over that weekend, was trading at just over $422 a share on Friday, March 8—making it the top holding in the Dow (around 11% of the index). Boeing’s market cap on Friday was around $235 billion, giving it a much smaller 1% weighting in the S&P 500 index.
Clearly, Boeing’s performance is critical to investors tracking the Dow, but it’s trivial for someone following the S&P 500 index. When Boeing was soaring—it gained 66.5% in 2017 and 34.5% in 2018—it was a boon for the Dow, which rose 25.1% in 2017, for instance, while the S&P gained 19.4%. This year, well, the tables have turned. For the quarter, the Dow climbed 11.2 percent, its best start to a year since 2013. Also, it was the Dow’s best quarter in 6 years. The Nasdaq is on pace first its biggest quarterly gain since the first quarter of 2012, rising 16.5%
Speaking of the S&P 500, on 3/21/2019, since the March 2009 lows, the last 6 months is only the sixth time that the S&P 500 has gone 100+ trading days without a new high, according to Bespoke Investment Research. See chart.
The S&P 500 surged 13.1% for the quarter, its biggest quarterly gain since the third quarter of 2009. The broad index also had its best first quarter since 1998. Do you know which strategy has consistently outperformed the S&P 500? Are you invested in it? It’s about performance, right? Please contact our office for more information. Getting back to our update, that’s why some of your mutual funds have not fully recovered and are still in the red, IF you’re doing it yourself or buying and hoping or using a discount broker that is.
Globally, on March 22, 2019 according to IHS Markit, manufacturing activity for Germany dropped to its lowest level in more than 6 years. In France, manufacturing and services slowed down to their lowest levels in three months and two months, respectively. For the Euro zone as a whole, manufacturing fell to its lowest level since April 2013.
Reported on April 1st, the Institute for Supple Management (ISM) said its index of national factory activity rose to 55.3 from 54.2 in February, which had marked the lowest level since November 2016.
Meanwhile, U.S. construction spending increased for a third straight month in February, boosted by gains in both private and public construction projects.
Summary:
For the year through Thursday, the Dow Jones Industrial Average and the broader S&P 500 have returned 10.9% and 12.9%, respectively. The MSCI EAFE index, a measure of developed international stock markets, is up 9.4%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has dropped to 2.91% from 3.28% at 2018’s end. On a total return basis, the U.S. bond market has gained 3.0% for the year. Commodities enjoyed a strong rally, WTI Crude finished near $62 a barrel and is up 42% from the Dec. 24th lows. Fixed Income experienced gains across the credit spectrum in March and during the first quarter of 2019. Although short-lived, the yield curve inverted in late March when comparing the yields of 3-month T-bills and 10-year U.S. Treasuries. Returns for different sectors of the market ranged widely, though. Cyclical stocks in the industrials and materials sectors came back to Earth on expectations for a trade deal with China. Health care stocks were flat, and financials trailed the market as the Fed’s policy change hurt sentiment. Real estate, technology and consumer discretionary stocks led the month’s gains, while defensive sectors (consumer staples and utilities) held up well.
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