It's Financial Literacy Month! Congress has officially designated the month of April as a time to raise awareness about Financial Education in the U.S.
General market news
- Rates continued to move lower last week, as the 10-year U.S. Treasury reached its lowest point in more than a month at 2.62 percent. The low for the 10-year in 2019 is 2.55 percent (on January 3). Over the past 12 months, the 10-year is down 20 basis points, standing as high as 3.23 percent last November. The longer end of the curve is pointing more and more toward an economic slowdown, as the 30-year broke below 3 percent on Monday morning.
If you’re like many investors, you’re starting to worry. After all, the stock market has declined for the third month in a row, with the S&P 500 getting close to correction territory (i.e., down 15 percent from the peak). Plus, important trend lines (e.g., 200-day moving average) have been broken. Understandably, everyone wants to know if the market will keep dropping.
General market news
- The 10-year U.S. Treasury opened at 2.87 percent early Monday, while the 30-year opened at 3.13 percent. The 2- to 5-year part of the curve remains slightly inverted, with the 2-year yielding about 0.08 percent more than the 5-year. The 3-year currently has the lowest yield of all three Treasuries, at 2.715 percent, and has the deepest inversion with a yield of 0.1 percent below the 2-year. The market will be paying close attention to the Federal Reserve (Fed) on Wednesday, which seems to be set on raising rates.
- Domestic and global markets continued their pullback last week, as Chinese-led global growth concerns and risk-off sentiment remained. Softer November activity data in China also continued concerns surrounding global growth. November industrial output reached a level of just 5.4 percent, below that of the 5.9 percent expected. Among the top underperformers were financials and energy, as oil weakness and the inverted yield curve between the 2- and 5-year Treasuries continue to weigh on the sectors.
- Other political concerns did not help the cause, as the Brexit picture remains murky and President Trump feuded with Nancy Pelosi and Chuck Schumer on immigration policy. This conflict could lead to yet another government shutdown. The U.S.-China trade truce story continues to be positive, but there are more details to be hashed out.
- There were several data points released last week. On Tuesday, the Producer Price Index showed year-over-year inflation of 2.5 percent for producers, which was in line with expectations and below October’s figure of 2.9 percent. On Wednesday, the Consumer Price Index also showed slowing inflation, with 2.2-percent annual growth in November, compared with 2.5-percent growth in October. The current downward trend in these two popular measures of inflation is an encouraging sign for the economy.
- On Friday, retail sales came in slightly better than expected with 0.2-percent monthly growth, against expectations for a modest 0.1-percent bump. This result follows strong 1.1-percent growth in October.
General market news
- Interest rates for U.S. Treasuries have been moving lower for a while now, but last week’s declines came at a faster pace. The 10-year Treasury moved from 3.05 percent to as low as 2.82 percent early Monday morning. Of potentially greater significance, however, is that the 2- and 5-year Treasury notes inverted last week. The 2-year Treasury now yields 2.72 percent, while the 5-year Treasury is at 2.70 percent. Moreover, the spread between the 2- and 10-year Treasuries fell to 10 basis points (bps). Historically, the inversion of the spread between the 2- and the 10-year Treasuries has been a leading indicator of an economic downturn. Meanwhile, the Federal Reserve (Fed) seems likely to raise rates on December 19.
- Last week, domestic and global markets were down across the board. The week began with news of a proposed 90-day trade truce between the U.S. and China. As the days went on, however, details surrounding the deal became less clear.
- In other news, the financial sector was down more than 7 percent on the week, as the inverted spread between the 2- and 5-year Treasuries weighed on banks. Industrials, another cyclical sector, was down more than 6.2 percent, on investor concerns about the broad economic cycle.
- The Institute for Supply Management (ISM) Manufacturing index increased to 59.3 from 57.7, well above the survey estimate of 57.5. This result was helped by a decline in the ISM Prices Paid index, which came in well below expectations. The ISM Nonmanufacturing index rose to 60.7 from 60.3, against expectations. Both reports indicate continued strength in the U.S. economy.
- November’s employment report was released on Friday. It came in weaker than expected, with 155,000 jobs added against an expectation for 198,000. But the unemployment rate and the participation rate remained unchanged. Wage growth was unchanged as well, holding steady at 3.1 percent year-over-year.
General market news
- Rates moved lower last week, breaking some support levels. The 10-year Treasury dropped below 3.05 percent and opened Monday morning at 3.03 percent. The short end of the curve has tightened, with the difference between the 2- and 5-year Treasuries only 3.5 basis points (bps). The spread had been as low as 2.5 bps last Friday. The 30-year Treasury stands at 3.32 percent. The difference between the 2- and 30-year Treasuries is now back down to only 48 bps.
- All three major U.S. markets were up last week, as the market waited for the G20 meeting. West Texas Intermediate crude oil dropped below $50 on continued global supply-demand concerns. Russia and Saudi Arabia opened discussions relating to the oil trade to extend the OPEC accord. Tailwinds are expected to come from U.S.-China trade talks, which can reduce the pressures that U.S. businesses face. Overall, the macro news for U.S. markets was positive.
- Several important economic updates were released last week. On Tuesday, the Conference Board Consumer Confidence Index declined slightly, as expected. This result was in line with a similar decline in the University of Michigan consumer sentiment survey released the week before.
- On Wednesday, the second estimate of third-quarter gross domestic product growth remained unchanged, at 3.5 percent on an annualized basis. Also on Wednesday, new home sales came in much worse than expected, falling 8.9 percent against expectations for a gain of 4 percent.
- On Thursday, October’s personal spending and personal income figures were released. Both reports beat expectations, growing 0.6 percent and 0.5 percent, respectively.
General market news
- Rates were flat or slightly down during the shortened Thanksgiving week. On Monday morning, the 10-year Treasury opened at 3.05 percent, the 2-year opened at 2.84 percent, and the 30-year opened at 3.32 percent. During the previous week, rates dropped by as much as 20 basis points.
- All three major U.S. markets were down last week, as oil and technology stocks continued to decline. West Texas Intermediate crude oil dropped more than 9 percent to $51.28 due to ongoing supply concerns and decreasing demand. Oil also faced pressure on news that Saudi Arabia may not force an oil production cut.
- Apple (AAPL) and Facebook (FB) both faced their own issues last week. Apple shares came under pressure after the Wall Street Journal reported that the company had cut its production of all three versions of its new phones launched in September. Facebook CEO and founder Mark Zuckerberg is reportedly unhappy with the way Sheryl Sandberg, chief operating officer, handled the Cambridge Analytica scandal, leading to concerns over a change of key personnel at the company.
- Last week was relatively busy, even with the Thanksgiving holiday. On Tuesday, October’s housing starts and building permits reports came in. These were a mixed bag, as housing starts rose slightly while permits declined slightly.
- On Wednesday, October’s durable goods orders fell by 4.4 percent, against expectations for a more modest 2.6-percent loss. This miss was largely due to a decline in volatile aircraft purchases. The core figure, which strips out transportation, rose by 0.1 percent.
- Finally, also on Wednesday, the University of Michigan consumer sentiment survey declined slightly from 98.3 to 97.5. This still represents a very healthy level of consumer optimism heading into the important holiday shopping season.