Stocks indexes ended the week modestly lower, despite a rally on Friday. Emerging markets saw larger losses. While progress is apparently being made on a trade deal with China, specific details have not been announced. The U.S. Dollar rose against a basket of currencies as the yield on the 10-year Treasury rose from 2.667% to 2.758% and attracted foreign buying. Gold prices were sharply lower and oil prices fell as well.
Much economic data came out this week including reports delayed by the partial government shutdown:
- The S&P CoreLogic Case-Shiller National Home Price Index rose 4.7% in 2018, down from the 6% increase in 2017.
- The National Association of Realtors reported that pending home sales rose 4.6% in January. Pending sales in January were 2.3% lower than January 2018.
- The Institute for Supply Management reported that the manufacturing purchasing managers index was at 54.2 in February, down from 56.6 in January. Anything over 50 represents expansion, just at a slower acceleration.
- The Commerce Department reported:
- Housing starts fell 11.2% in December. Keep in mind that the numbers are volatile from month to month and comes with a 14 percentage point margin of error. This release was delayed by the partial government shutdown. For the calendar year 2018 housing starts rose by 3.6% from the prior year. Single family starts were down 6.7% in December and multi-family starts were down 20.4%. Rising mortgage rates and a lack of deductibility due to the increased standard deduction have negatively impacted single family home construction. Unknown at this point is what effect the partial government shutdown had on December starts.
- Building permits, a measure of future housing starts, rose 0.3%. With single family permits falling 2.2% and multi-family starts rising 4.9%.
- The first estimate of U.S. gross domestic product in the 4th quarter rose at a 2.6% annual rate. This is down from 4.2% in the second quarter and 3.4% in the third quarter. For the entire year GDP grew at a 2.9% annual rate. Compared to the 4th quarter in 2017, Q4 2018 was up 3.1%. The Federal Reserve is forecasting growth of 2.3% in 2019. The report estimated the effect of the partial government shutdown as 0.1% in the 4th quarter.
- Personal Income fell 0.1% in January following a 1.0% rise in December. This was likely impacted by the partial government shutdown.
- The price index for personal-consumption expenditures in December rose 0.1%. For the entire year, this was up 1.7%. This is the FED’s preferred measure of inflation and came in below the FED’s 2.0% target for the year. Excluding volatile food and energy prices the PCE inflation number was up 0.2% in December and 1.9% for the year.
- The Labor Department reported first time claims for unemployment rose 8,000 to a seasonally adjusted 225,000. The four week moving average of claims fell 6,750 to 229,000.
- Canada reported its gross domestic product rose at an annualized rate at only 0.4% in the fourth quarter. The slowdown was worsened by the decision by Alberta to reduce oil output to reduce global inventories.
- Caixin/Markit reported:
- The China Manufacturing Purchasing Managers Index was 49.9 in February. Anything less than 50 represents contraction. However, this is higher than the January reading of 48.5.
- The China Non-Manufacturing PMI was 54.3 in February down from 54.7 in January. Because the index is greater than 50, this represents expansion, just at a slower pace.
- The Energy Information Administration weekly report is here wpsrsummary. Also, the EIA reported
- U.S. Crude oil production rose from at 12.0MM barrels per day to 12.1MM barrels per day.
- Storage of natural gas fell 166BN cubic feet.
- Baker Hughes reported in the past week that the number of active oil rigs fell 10 to 843 and the number of active gas rigs rose 1 to 195.
- Factset reported with 96% of S&P 500 companies reporting earnings, the blended earnings growth rate in the 4th quarter was 13.1%. 69% of companies reporting had positive earnings surprises and 61% had positive revenue surprises. 26 companies have issued positive earnings guidance and 73 had issued negative earnings guidance for Q4.
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Loren C. Rex, CFP®, AIF®, MA Erik A Smith
President Managing Partner
Generations Financial Planning & Wealth Management 269-441-4143
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Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.