Market Commentary – 2/11/19
Central banks take a turn.
At its first policy meeting of 2019, the U.S. Federal Reserve changed direction. After four rate increases in 2018, Chair Jerome Powell announced interest rates were on hold. Last week, banks in the United Kingdom, Australia, and India followed suit by either reducing rates or cautioning rate reductions were likely, reported Sam Fleming and Jamie Smyth of Financial Times.
The dovish tone of central banks owes much to slowing global growth. January’s International Monetary Fund World Economic Outlook lowered global growth estimates for 2019 and 2020. Changing expectations were fueled both by factors that slowed momentum in the second half of 2018 and by issues that pose a potential risk to continued economic growth. These included:
- The negative effects of higher tariffs
- New auto emission standards in Germany
- A slowdown in domestic demand in Italy
- Economic contraction in Turkey
- High levels of public and private debt
- Escalating trade tensions
- A no-deal British exit from the European Union
- A severe slowdown in China
These issues have had limited effect on the U.S. economy; however, global risks are affecting the performance of some U.S. companies. Financial Times explained:
“The U.S. domestic economy has continued to put in a robust performance, with the number of new jobs in January coming in well ahead of Wall Street expectations and wage growth running comfortably above inflation. But corporate giants in the S&P 500 index, which generate over a third of their earnings overseas, are sounding the alarm about faltering overseas demand in markets including China, where the government has been battling against a slowdown. Smaller U.S. firms are feeling the global chill as well.”
Randall Forsyth at Barron’s reported major U.S. benchmarks finished last week higher, while the yield on 10-year U.S. Treasuries hit a 13-month low. Outside the United States, some global stock markets moved lower.
|Data as of 2/8/19||1-Week||Y-T-D||1-Year||3-Year||5-Year||10-Year|
|Standard & Poor’s 500 (Domestic Stocks)||0.1%||8.0%||4.9%||13.5%||8.5%||12.0%|
|Dow Jones Global ex-U.S.||-1.2||5.7||-9.6||7.7||0.5||5.6|
|10-year Treasury Note (Yield Only)||2.6||NA||2.9||1.7||2.7||3.0|
|Gold (per ounce)||-0.3||2.6||-0.1||3.3||0.6||3.9|
|Bloomberg Commodity Index||-1.1||4.4||-8.0||2.0||-8.9||-3.4|
|DJ Equity All REIT Total Return Index||1.6||12.6||22.3||11.8||9.9||15.4|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
AT THE INTERSECTION OF ECONOMICS AND VALENTINE’S DAY…Author and illustrator Liz Fosslien has thought a lot about economics and Valentine’s Day. In ‘14 Ways an Economist Says I Love You,’ she offers this advice:
“Give your loved one a nerdy Valentine and they’ll be yours forever! Why? Because if you give them diamonds/cufflinks this year, anything you get them next year will fall short. Give them [a nerdy Valentine] and anything they receive next year will be a step up. It’s called expectation management and is the key to a long and happy relationship.”
Fosslien suggests a variety of approaches to saying, ‘I love you,’ in economic terms. (Each is accompanied by an illustrative chart or graph at Fosslien.com/heart.) If you’re looking for a way to express the magnitude or enduring nature of your feelings, you could try:
- I don’t think your great, / I think you’re fantastic, / For what you’re supplying, / My demand’s inelastic.
- The monopoly you have on my heart is all natural.
- Our risk of default is zero.
- The S&P was in the red, / But I wasn’t blue, / Because I shorted the market, / And went long on you.
- The marginal returns of spending time with you will never diminish.
- Irrational, asymmetric, / Love is so foolish. / But I could not care less, / If you’re the stock then I’m bullish.
If the dismal science of economics doesn’t deliver the level of romance your relationship requires, you can always go for the cufflinks or the diamonds.
Weekly Focus – Think About It
“Taking in the good, whenever and wherever we find it, gives us new eyes for seeing and living.”
–Krista Tippett, American journalist
Angela M. Bender
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* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
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