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Domestic equity markets decline meaningfully
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Trade tensions and Facebook dominate financial press
- Technology and Financial stocks lead sell-off
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Federal Open Market Committee (FOMC) raises short term rates
Major domestic equity markets were down meaningfully last week with The NASDAQ leading the drop. The S&P 500, NASDAQ, and Dow all declined in the 6% range on the week. The biggest declines occurred in Technology and Financials companies both of which were down more than 7%. Financial headlines revolved around Facebook and trade tariffs placed on China. Sentiment in general is turning negative. Underlying fundamentals remain positive in aggregate. Clearly, Facebook has significant issues to resolve and the ultimate tensions on trade, and the saber rattling from the Trump administration will continue to play out.
It may be a blessing that next week’s trading activity will be shortened by Good Friday. Bond markets close mid-day on Thursday and financial markets are closed Friday. Further, with the quarter’s end next week, Q1 earnings season is a couple of weeks off and will direct the capital markets more towards fundamentals.
As anticipated the Federal Reserve hiked short term interest rates last week. The Federal Funds rate was raised by .25%. The consensus continues to be two additional interest rate hikes this year, potentially three. Chairman Powell’s first announcement and press conference went well. Domestic economic policy for all intents and purposes has slipped into the background for now. Long term domestic interest rates continue to edge lower since the inflation scare and market correction in January.
While market declines and volatility are disconcerting to investment managers don’t forget we have come through a period of extremely muted market volatility in which equity prices moved higher consistently. That isn’t the norm and psychologically exacerbates the current market turmoil.
The economic calendar includes release of Case-Shiller home price indices on Tuesday, as well as, pending home sales for February being reported by the National Association of Realtors on Thursday. The Bureau of Economic Analysis releases the last estimate of Q4 GDP on Wednesday.
Next week is yet another slow week for earnings reports:
Monday – Paychex and Red Hat
Tuesday – Lululemon athletics and McCormick
Wednesday – Walgreens Boots Alliance and GameStop
Thursday – Constellation Brands and Dollarama
Indices for the week and YTD are as follows:
S & P 500 down 5.95% for the week; YTD index return is -3.19%
NASDAQ Composite down -6.54% for the week; YTD index return is +1.29%
Dow Jones Industrial Average down 5.67% for the week; YTD index return is -4.80%
Benchmark 10-year Treasury bond yield stands at 2.82% - down 2 basis points for the week.
