U.S. and foreign stocks saw substantial gains for the week with a strong rally on Friday. Stocks rose Thursday after President Trump announced tariffs on steel and aluminum that exempted Canada and Mexico (unless there is a total breakdown on NAFTA negotiations). Trump also said that other allies may be exempted. Since Canada is the biggest steel exporter to the U.S., supplying about 17% of our consumption, followed by South Korea. Therefore, the tariffs would have much smaller effect than initially thought. The rally on Friday was boosted by two factors:
- The announcement delivered by South Korea Thursday evening that Kim Jong Un would meet directly with Trump to talk about denuclearization and that North Korea would not test nuclear weapons or missiles during negotiations. Also, North Korea accepted that the U.S. and South Korea may still have training exercises during negotiations. I would caution against excessive enthusiasm as I’m sure the sanctions are really hurting North Korea at this point and they have violated prior agreements once sanctions were lifted.
- While the February jobs number was robust, wage gains were more muted. When the January jobs number came out and showed wages had risen 2.9% from a year earlier it prompted Treasury yields to spike and stocks to sell off. Since the February wage gain was only 2.6% year over year, this was seen as a good sign that the FED will not become more aggressive in hiking interest rates.
In the numbers this week:
- The Institute for Supply Management reported:
- It’s manufacturing index rose from 60.2 in January to 60.8 in February.
- Its non-manufacturing index fell from 59.9 in January to 59.5 in February. Anything over 50 represents expansion, just at a slower pace.
- The Commerce Department reported the trade deficit rose 5% in the month of January to $56.6 BN. Imports were unchanged but exports fell.
- The Labor department reported:
- First time claims for unemployment rose 12,000 to a seasonally adjusted 231,000.
- Productivity of US workers was unchanged in the fourth quarter.
- Unit labor costs rose at a 2.5% pace in the fourth quarter.
- The U.S. added 313,000 jobs last month. The unemployment rate was unchanged at 4.1%. January’s jobs were revised up from 200,000 to 239,000 and December’s jobs were also revised slightly higher.
- Average hourly earnings rose 0.1% in February. From a year ago, wages rose 2.6%, less than the 2.9% in January.
- The Energy Information Administration weekly report is here wpsrsummary (6). Also the EIA reported:
- Weekly field production of crude oil rose 86 thousand barrels per day.
- Storage of Natural Gas fell 57BN cubic feet.
- According to Baker Hughes, In the past week the number of active oil rigs fell 4 to 796 and the number of active gas rigs rose 7 to 187.
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Loren C. Rex, CFP®, AIF®, MA Erik A Smith
President Managing Partner
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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.