Markets had a nice February. A dovish Fed and hopes for a trade deal with China helped the S&P finish up +3.0 for the month; the Dow up +3.7; and the Nasdaq up +3.4%.
Since the end of September 2018 thru February 2019 (the last five months): the S&P is down -4.5%, the Dow is down -3.0, the Nasdaq is down -6.4%, and the Russell is down -7.1%. After two positive months, Markets are well on their way to fully reversing a terrible Q4 2018.
Q4 GDP came in at +2.6%, easily beating the consensus number of +2.2%. This means GDP for 2018 (calendar year) was +3.1%. It’s the third straight rolling four-quarter GDP average over +3.0%.
Fed Chair Jay Powell completed his required bi-annual testimony in front of Congress. Tuesday Powell told the Senate Banking Committee: “While we view current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrent and conflicting signals”. Meaning… the Fed will be “patient”, and there will be no rate hikes for a while (I think the earliest would be September). Wednesday Powell testified before the House Financial Services Committee: The Fed will stop reducing its balance sheet sometime later this year. They’ve taken off $500 billion, and another $500 billion is likely to come off. If that indeed happens, the Fed’s balance sheet will have been dropped from $4.5 trillion down to $3.5 trillion. In review: the two days of testimony provided nothing really new.
My model’s status: Speed #1 (the short-term indicator) remains positive. Speed 2 is positive. Speed 3 is slightly positive. Speed 4 and 5 are in transition (upward). Summary: two up arrows, and three neutral arrows.
The focus of the week: It will come on Friday morning at 8:30am when we get February’s new employment data. Jobs are expected to come in near +180,000, with the U3 unemployment rate dropping a tick from 4.0% down to 3.9%.
While earnings season is effectively over, there are a few important retail companies reporting this week: Barnes & Noble, Kohl’s, and Target.
Indicator focus: December’s new home sales, ISM’s February non-manufacturing index (Tue); December’s trade balance, February’s ADP employment report (Wed); January’s housing starts, and February’s new employment data (Fri).
Have a great week.
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