Monthly Market Insights | May 2019
Stocks extended their rally this year on the heels of reinvigorated economic strength and better-than-expected corporate earnings, setting record highs in April.
The Dow Jones Industrial Average gained 2.56 percent, while the Standard & Poor’s 500 Index picked up 3.93 percent. The NASDAQ Composite led, bounding 4.90 percent higher. ¹
Entering the month, investors were worried after the release of a poor February jobs report and other disappointing economic data. But sentiment quickly reversed, following a wave of upbeat news.
The early-month rally was supported by comments that a trade deal may be imminent. Stocks inched higher, as earnings season began on a mixed note. But as more companies reported, investor enthusiasm increased as more firms checked in with better-than-expected numbers and raised 2019 guidance.
Strong earnings reports suggest to some investors that the consensus view of first-quarter economic growth may have been overly pessimistic.
Earnings, Earnings, Earnings
Through April 26th, 46 percent of companies in the S&P 500 index had reported earnings for the January-through-March quarter. Of those, 77 percent posted earnings above estimates; though, there was a sprinkling of big disappointments, according to FactSet Research.²
Investors powered the S&P 500 and NASDAQ Composite indices to new all-time highs, just as the market was entering the busiest stretch of the earnings season. As more companies reported, S&P 500 and NASDAQ Composite both set yet another record close on the final trading day of the last full week in April.
Overall, stocks were mixed at the month’s closing: the S&P 500 ended at a record high, while the NASDAQ pulled back from its historical top.
Most industry sectors ended the month in the positive column, led by gains in Communication Services (+9.51 percent), Financials (+8.83 percent), and Technology (+6.19 percent). Gainers also included Consumer Discretionary (+5.62 percent), Consumer Staples (+1.68 percent), Energy (+0.06 percent), Industrials (+3.56 percent), and Materials (+2.63 percent). Losses were felt in Health Care (-3.16 percent), Real Estate (-1.66 percent), and Utilities (-0.70 percent). ³
What Investors May Be Talking About in June
In part, the stock market’s advance this year has been powered by the Fed’s wait-and-see policy on interest rates and an improving outlook for a China-U.S. trade deal. But as one set of worries appears to fade, new ones tend to emerge.
Investors may be paying close attention to upcoming reports, including second-quarter Gross Domestic Product. They also are expected to keep a close eye on inflation reports and whether March’s increase in the Consumer Price Index is an aberration or the beginning of a sustained period of higher prices.
For now, it appears that markets may be happy with a “just right” Goldilocks economy: cool enough not to spark rising prices or prompt the Fed to take action, but warm enough to avoid chilled company profits or fiscal sluggishness.
In the weeks ahead, reports may be judged by one simple standard: is the news “just right?”
The MSCI-EAFE Index gained 2.2 percent on hopes that the continuing economic recovery in China would spark higher economic growth in otherwise struggling economies in the eurozone.⁴
Despite weak economic numbers and no resolution on Brexit, developed markets in Europe managed gains on good economic data out of China (which represents an important importer of European goods) and a positive start to their earnings season, with France gaining 4.4 percent, Germany increasing 5.7 percent, and the United Kingdom moving up 1.4 percent.⁵
Stock gains in the Pacific Rim markets were solid, with Australia advancing 3.2 percent, and Japan, 5.0 percent.⁶
Gross Domestic Product
Economic growth in the first quarter surprised investors and economists, alike. The Bureau of Economic Analysis announced that the economy grew at a 3.2 percent annualized pace in the first quarter, despite the headwinds of a government shutdown in January and an inclement February.⁷
Job growth staged a strong rebound from February’s weak number, as nonfarm payrolls increased by 196,000 in March. The rate of wage gains slowed a bit, rising 3.2 percent year-over-year. The unemployment rate was unchanged at 3.8 percent.⁸
Retail sales declined 0.2 percent in February, while January retail sales were revised higher, from 0.2 percent to 0.7 percent.⁹
Consumer spending rebounded strongly in March, rising 1.6 percent – the largest monthly jump since September 2017.¹⁰
Output of domestic factories, mines and utilities fell 0.1 percent in March, weighed down by a slowing global economy.¹¹
Housing starts slipped 0.3 percent in March.¹² Existing homes sales slid 4.9 percent, with declines occurring in all geographic regions.¹³ New home sales rose 4.5 percent, an upside surprise given the consensus view that expected a 2.5 percent decline.¹⁴
Consumer Price Index
Driven higher by a spike in energy costs, the Consumer Price Index rose by 0.4 percent in March. For the 12 months ended March, consumer prices increased 1.9 percent.¹⁵
Durable Goods Orders
The initial estimate of orders for long-lasting goods declined 1.6 percent in February, weighed down by a sharp drop in aircraft orders.¹⁶
March orders of durable goods jumped by 2.7 percent. For the first quarter, durable goods orders are 3.0 percent higher versus the same time period last year.¹⁷
Minutes from the Federal Open Market Committee meeting in March provided further evidence that Fed officials remain comfortable with its pause in rate hikes.
Fed officials noted in the minutes that there appears little reason to raise rates amid an environment of stable, within-target inflation and recent signs of global economic weakening.¹⁸