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Grinding Higher...This Week's 7 Things to Know About the Markets & the Economy

1. Weekly Market Update: Grinding Higher. The stock market surpassed a key hurdle this week on reassuring economic and inflation reports.  The S&P 500 finally advanced beyond 2815, a key level that has contained advances since October of last year. Key equity averages now stand within 3-4% of their all-time highs. As has been a common recent theme, positive news on trade helped to boost financial assets this week. International Stocks were particularly strong.

2. “Concrete Progress” is being made on finalizing a trade deal according to a report issued by China State Media this (Friday) morning. Conference calls between trade negotiators were reported to have occurred on Tuesday, Wednesday and Thursday and we got news that a Trump-XI summit is now being coordinated and is expected to occur in mid-April. President Trump said this week that discussions are going “extremely well."  Still, there are plenty of items and headlines that can potentially derail markets in the coming days. Earlier this week Treasury Secretary Steven Mnuchin promised that any deal would have a “very clear enforcement mechanism” during congressional testimony.  U.S. Trade Representative Robert Lighthizer, in testimony before the Senate said that America must keep the option of raising tariffs as a way to ensure Beijing lives up to any trade pact. Republican Senator Rob Portman said no deal would be closed without substantial changes to how China treats intellectual property rights. Despite these potential sticking points, Gary Cohn, the former head of Donald Trump’s National Economic Council, said the President “needs a win” on Chinese trade talks and is desperate for a deal.

3. All Clear Signals for the Economy: This week’s economic reports were very reassuring.  Of particular note was Friday’s JOLTS (Job Openings and Labor Turnover) Survey which told us that there are a whopping 7.6 million job openings currently in the US. For the first time in the history of the JOLTS survey, there are more job openings than there are unemployed people to fill them. Given the very strong labor market, economists are concerned about inflation. However, we are just not experiencing any. The consumer-price index (CPI), which gauges what Americans pay for everything from used trucks to lipstick, rose a seasonally adjusted 0.2% in February, right in line with expectations. The CPI reading gave investors further confidence that the central bank will hold off on tightening monetary policy in the near future. The Producer Price Index which measures the prices paid by producers of goods, also indicated no real inflation in sight. All other economic readings which ranged from Durable Goods orders to Retail Sales were reassuringly in line with expectations. Consumer Sentiment surprised to the upside- the consumer is in good spirits. 

4. The Bull Market’s Greatest Feat? Sowing Doubt. The Bull market that began 10 years ago has had many skeptics and perhaps that is why it has lasted so long. This bull run has just not had the power and intensity that other bull runs have experienced. When you divide the move up by the calendar days (see chart) we see a slow moving bull, not a ferocious one. Perhaps slow moving Bulls have more staying power? This Bull’s primary characteristic is how much skepticism it has generated. The intensity of gains that defined the stock market bubbles of the 1920s and 1990s never developed in this cycle. Instead, many investors spent the past decade deriding the rally and anticipating its demise. For much of the past decade, economic growth remained lackluster; corporate earnings, at least until last year, were uninspiring; and the global economy bounced from one crisis to the next.

5. More on the 10 Year Old Bull and Staying Invested. HALF AS MUCH - The total return for the S&P 500 over its 10-year bull market (i.e., 3/10/09 through 3/08/19) was a gain of +17.5% per year (total return). If you missed the 20 best percentage gain days over the 10-year bull run (i.e., 20 days in total, not 20 days per year), the +17.5% annual gain is cut in half to an +8.6% annual gain. There were 2,517 trading days over the entire 10 years (source: BTN Research).

6. Presidential Cycle: The 3rd year of a President’s term has historically been a consistently good year. Why? Presidents tend to do all they can, within their power, to get the economy on sound footing knowing that many Americans vote with their wallets. Administrations also tend to avoid controversial market moving legislation and tend play nicer in the sandbox. In addition, the Federal Reserve Bank, in a continuing effort to look apolitical, will normally refrain from big moves regarding interest rates leading up to an election.  The Fed could be on hold for quite some time. We expect to hear more 3rd year chatter as the year progresses.

7. Time to Re-Fi Again? With no inflation in sight and recent signs of global economic sluggishness, US Treasury notes traded lower this week.   Thirty year mortgage rates, as they typically do, followed Treasury rates lower hitting a new yearly low of 4.1%. 

What We’re Reading…

  • The Bull Market’s Greatest Feat? Sowing Doubt (DealBook) - Rob
  • These 12 Habits Will Help You Reach Your Financial Freedom (Investopedia) – Courtney, Suellen  
  • What to Do When You Realize You’ve Made a Mistake (Harvard Business Review) –Katie
  • Seek Wealth, Not Money or Status (Startup Boy) – Katie
  • The Single Woman’s Guide to Retirement Planning (Barron’s) -  Courtney, Suellen
  • A Mirror Onto Ourselves (Your Brain on Stocks) - Rob
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