Five Talking Points from this week.
- This week saw trade tensions rise which caused a risk off response from investors. While the S&P 500 Index is poised for its worst week (-2.08%) of the year, volatility remains low and the market remains up 15.75% for 2019.
- Tariff exposed sectors took the brunt of the pain while defensive, more domestic sectors held up reasonably well.
- A closely watched section of the U.S. yield curve has inverted once again. The yield on 10-year Treasury notes briefly fell below the 3-month bill yield on Thursday for the first time since March. Normally the spread is positive to compensate investors for inflation risk, so when it turns negative, pundits normally call for economic slowdown.
- Speaking of inflation… On Thursday the Producer Price Index reflected subdued pipeline inflationary pressures, non-petroleum import prices are declining, and the deceleration in growth is constraining businesses pricing power. Core PPI for final demand (excluding volatile food, energy, and trade services components), the Fed’s preferred gauge of the underlying price trend, jumped by 0.4% m/m in April (consensus: 0.2%), its largest rise since January 2018, but this follows several months of flat readings. As a result, it rose by a moderate 2.2% year over year (2.3% was expectations)
- On Friday, a key measure of U.S. consumer prices rose by less than expected in April on lower used-car and apparel costs, further testing the Federal Reserve’s resolve. The core consumer price index, which excludes food and energy, rose 0.1% from the prior month, missing estimates, while the broader headline measure rose 0.3%, also short of forecasts. The data suggest a sustained pickup in inflation may remain elusive for some time despite the lowest jobless rate in 50 years and consistent wage gains.
- Friday’s news was highlighted UBER’s long awaited IPO day… While not the worst market debut ever, the 7.6% decline from offer price (priced at $45/ closed at $41.57) marked the fourth worst first day of trading for an IPO this decade (ZTO Express (Cayman) Inc., iQIYI, Inc. & ADT Inc. were worse).
- While U.S. earnings growth has slowed markedly from 2018, a surprisingly resilient first quarter continues to support our still-positive view on U.S. equities.
- In Case you missed it… The Federal Reserve maintained its patient policy stance last week, and U.S. jobs gains and eurozone growth both surprised to the upside.
Disclosure: This Commentary represents a review of topics of possible interest to Pennsylvania Trust’s clients and is not personalized investment advice. It contains Pennsylvania Trust’s opinions, which may change following the date of publication. Information obtained from third-party sources is assumed to be reliable but is not guaranteed. No outcome – including performance – is guaranteed, due to various uncertainties and risks. This document is not a recommendation of any particular investment. Investment decisions for clients are made on an individualized basis and may be different from what is expressed here. Past performance is no guarantee of future results.