Week of March 18 - 22, 2019

Maureen Kelliher, CFA

Maureen Kelliher, CFA

March 27, 2019

Weekly Economic Review

Weekly Macro Updates

Initial Jobless Claims (Mar 16) 225k est., 221k actual, 230k prior
Continuing Claims (Mar 9) 1770k est., 1750k actual, 1777k prior
NAHB Housing Market Index (Mar) 63 est., 62 actual, 62 prior
Factory Orders Ex. Transportation (Jan) -0.2% actual, -0.5% prior: R-
FOMC Rate Decision (Mar) 2.50% est., 2.50% actual, 2.50% prior
Philadelphia Federal Reserve Business Outlook (Mar) 4.8 est., 13.7 actual, -4.1 prior
Leading Economic Index (Feb) 0.1% est., 0.2% actual, 0.0% prior: R+
Markit U.S. Manufacturing PMI (Mar P) 53.5 est., 52.5 actual, 53.0 prior
Markit U.S. Services PMI (Mar P) 55.5 est., 54.8 actual, 56.0 prior
Existing Home Sales (Feb) 3.2% est., 11.8% actual, -1.2% prior: R+
Chicago Federal Reserve National Activity Index (Feb) -0.38 est., -0.29 actual, -0.25 prior: R+
Dallas Federal Reserve Manufacturing Activity (Mar) 8.9 est., 8.3 actual, 13.1 prior
Housing Starts MoM (Feb) -1.6% est., -8.7% actual, 11.7% prior: R-
Building Permits MoM (Feb) -0.9% est., -1.6% actual, -0.7% prior: R-

 Strong or Improving
 Inconclusive or lacking trend
 Weak or declining
R+ Revised up
R- Revised down

Capital Market Implications

Last week’s big surprise was the dovish tilt taken by the FOMC, the rate-setting arm of the federal government, at its March meeting.  Although, as expected, the committee left short-term interest rates unchanged at 2.5%, the Federal Reserve indicated the Fed Funds rate was now neutral (neither too accommodative nor too restrictive) and therefore there would be no further rate hikes this year.  With the Fed on hold, mortgage rates fell last week, which should help the beleaguered housing industry.  Housing weaken throughout the winter with housing starts and building permits turning down again in February.

After last week’s shift to a more dovish stance by the Federal Reserve, there was a dramatic reversal in stock market sentiment.  Generally, lower interest rates are a tailwind for stocks, but not when they suggest slower growth ahead. As such, markets took a nasty tumble last Friday, leaving the Dow Jones Industrial Average off -1.3% and the S&P 500 Index down -0.8% for the week overall.  The sector that lead the carnage was financials, which plunged -4.8%, while retail, consumer staples and real estate gained approximately 1.0%.  Although international markets fared a bit better, it was a function of their closing earlier on Friday than the U.S. markets.  For the week, developed foreign markets fell -0.3% while emerging markets rose slightly.  Last week, after the Fed’s pronouncements, interest rates sank and bond prices soared providing a boost to bondholders.  The B1arclays U.S. Aggregate Index jumped 0.9%, U.S. corporate bonds climbed 1.1% and 10-year municipal bonds rose 0.7%.  Even high yield bonds participated in the week’s rally, having gained 0.3%.