Proprietary Research. Monthly Insights. February 2019

Transcription

1 Proprietary Research February 2019

2 Monthly Commentary With the turn of the calendar, equity markets are off to a roaring start. Troubles from the 4th quarter are a distant memory as U.S. stocks have recovered nearly all their losses. Even more, bonds have staged a nice rally over the last few months, adding incremental return to balanced portfolios. However, even though markets are ignoring the trouble spots, it doesn t mean they don t exist. In fact, the U.S. faces a few critical challenges in the coming months. First, March 1st was supposed to be the deadline for the U.S. and China trade negotiations. Latest reports suggest progress is being made and an extension to the deadline is on the horizon. If a deal is not consummated (or an extension allowed), the U.S. will impose 25% tariffs on $200 billion of Chinese imports. This escalation in trade tariffs will most certainly bring further retaliation from China, increasing risk to future economic growth. On the other side, a new trade deal could spur economic activity, at a time when growth is slowing. Second, even though we have a new deal on the government budget, the next political hurdle is waiting in the wings - hitting the national debt ceiling. Based on estimates, the government will hit that ceiling at the end of March. The Treasury Department will then have a few months worth of emergency measures (i.e. raiding other government accounts) until the U.S. government faces default. All signs point to this being a contentious battle and past debt ceiling debates were just the opening act. Hopefully politicians will find some common ground without creating too much agita along the way. Once again, there are a few changes to the Allegiant Economic Dashboard this month. First, the good news: the S&P 500 versus its 20-month moving average has improved from red to yellow. January s strong market returns pushed the index back up. However, we are not out of the woods yet, as even a small sell-off would send markets back below our critical level. One very positive aspect of the recent market rally is the wide breadth associated with the gains. A vast majority of stocks are participating in the gains, instead of narrower leadership from only a small group of strong performers. This is welcome news and provides some support for continued strength. Also making a positive move this month: the 10-year/3-month interest rate spread moved from yellow to green. The yield curve has widened out a bit as the Federal Reserve backed off tightening rhetoric. This is one of our most important indicators and still remains on close watch. Any hawkish move from the Fed could easily push this into the trouble zone. Finally, the year-over-year change in consumer confidence turned from green to yellow. While consumer confidence remains at historically high levels, the rate of change is an important indicator for future activity. The Investment Research Team at Allegiant anticipated a slowdown in this indicator for a while, and we re seeing it now. While it is not overly worrisome yet, any shock to confidence could send this indicator into the trouble zone. In many respects, investment returns in the first part of the year would stand as above average - for the whole year. While much of this is a timing issue (the S&P 500 bottomed on December 24th), it does not go without notice that it took much heavy lifting to get markets to these levels. Once again, the Investment Research Team at Allegiant is examining risk levels and identifying potential areas to reduce risk, where appropriate. Benjamin W. Jones, CFP, AIF CERTIFIED FINANCIAL PLANNER President, Chief Investment Officer, Principal

3 Job Openings ISM Service Leading Index Consumer Confidence Y-o-Y Change 10-Year/3-Month Treasury Spread S&P 500 & 20-Month Moving Average Positive Indicator Warning Indicator February 2019 Negative Indicator

4 Table of Contents Economy 6) U-3 & U-6 Unemployment 7) Labor Force Participation Rate 8) Long-Term & Short-Term Unemployment 9) Nonfarm Payrolls 10) Job Openings 11) Employment Statistics 12) Global GDP 13) U.S. Trade Statistics 14) U.S. Manufacturing PMI 15) Foreign Manufacturing PMI 16) U.S. Services PMI 17) Foreign Services PMI 18) Economic Activity 19) Housing Supply & Demand 20) Housing Prices 21) Household Finances 22) Consumer Default Rates 23) Consumer Spending & Saving 24) Consumer Confidence 25) Consumer Confidence Y-o-Y 26) Federal Government Finances 27) Yield Curve Spread Equities 29) Corporate Profits 30) S&P 500 & 20-month Moving Average 31) S&P 500 Earnings Yield & Baa Bond Yield 32) Corporate Finances 33) Global Earnings 34) Domestic Valuations 35) Foreign Valuations 36) Sector Valuations 37) Sector Valuations 38) Sector Valuations 39) Sector Valuations Fixed Income 41) Consumer Prices 42) Producer Prices 43) M2 Money Supply & Velocity 44) Global Central Bank Policy 45) 10-Year Treasury Yield 46) Global 10-Year Yields 47) I/G Corporate Bond Spreads 48) High Yield Spread 49) Muni/Treasury Ratio 50) State and Local Debt 51) Emerging Market Bond Spread 52) Mortgage Delinquency Rates Commodities 54) Energy 55) Industrial & Precious Metals 56) Agriculture 57) Foreign Exchange

5 Economy

6 U-6 & U-3 Unemployment Economy 6

7 U-3 Unemployment & Participation Rate Economy 7

8 Long-Term & Short-Term Unemployment Economy 8

9 Nonfarm Payrolls Economy 9

10 Job Openings Economy 10

11 Employment Statistics Wage Growth Employment Cost Index Average Weekly Hours Worked Total U.S. Productivity Economy 11

12 Global GDP Growth Economy 12

13 U.S. Current Account U.S. Trade Statistics Import/Export Growth Y-o-Y Import Prices ex-petroleum Import/Export Prices Economy 13

14 U.S. Manufacturing PMI Economy 14

15 Foreign Manufacturing PMI Euro Zone China Japan UK Economy 15

16 U.S. Services PMI Economy 16

17 Euro Zone Foreign Services PMI China Japan UK Economy 17

18 Light Vehicle Sales Economic Activity Durable Goods Orders Industrial Production Capacity Utilization Economy 18

19 Housing Supply & Demand Housing Starts & NAHB Index Existing & New Home Sales Housing Supply in Months Homeownership Rate Economy 19

20 Housing Prices Homebuyer Affordability Case-Shiller 20-City Home Price Index Economy 20

21 Household Debt Service Ratio Household Finances Household Net Worth Household Debt Y-o-Y Growth Household Net Worth Y-o-Y Growth Economy 21

22 Consumer Default Rates Economy 22

23 Consumer Spending & Saving Retail Sales Savings Rate Personal Income & Spending Energy Expenditures a % of PCE Economy 23

24 Consumer Confidence Economy 24

25 Consumer Confidence Y-o-Y Change Economy 25

26 Federal Government Finances Federal Budget Surplus/Deficit Federal Debt Average Maturity Total Public Debt to GDP Economy 26

27 10-year/3-month Treasury Spread Economy 27

28 Equities

29 U.S. Corporate Profits Equities 29

30 S&P 500 & 20-Month Moving Average Equities 30

31 S&P 500 Earnings Yield & Baa Bond Yield Equities 31

32 S&P 500 Debt/Equity Corporate Finances S&P 500 Operating Margin S&P 500 Current Assets/Total Assets S&P 500 Dividend Payout Ratio Equities 32

33 Global Earnings Equities 33

34 Domestic Valuations Equities 34

35 Foreign Valuations Equities 35

36 Health Care Sector Valuations Consumer Staples Utilities Equities 36

37 Consumer Discretionary Sector Valuations Technology Financials Equities 37

38 Energy Sector Valuations Materials Industrials Equities 38

39 MLP Sector Valuations REIT Equities 39

40 Fixed Income

41 Consumer Prices Fixed Income 41

42 Producer Prices Fixed Income 42

43 M2 Money Supply & Velocity Fixed Income 43

44 Global Central Bank Policy Fed Funds Rate European Reference Rate Bank of England Rate Japan Overnight Rate Fixed Income 44

45 10-year Treasury Yield Fixed Income 45

46 Global 10-year Government Bond Yields Fixed Income 46

47 Investment Grade Corporate Bond Spreads Fixed Income 47

48 High Yield Bond Spread Fixed Income 48

49 10-year AAA Muni/Treasury Ratio Fixed Income 49

50 State & Local Debt Y-o-Y Growth Fixed Income 50

51 Emerging Markets Bond Yield Spread Fixed Income 51

52 Mortgage Delinquency Rates Fixed Income 52

53 Commodities

54 WTI Crude Oil Energy Natural Gas Heating Oil Coal Commodities 54

55 Industrial & Precious Metals Gold Silver Copper Aluminum Commodities 55

56 Corn Agriculture Wheat Sugar Soy Beans Commodities 56

57 Dollar Index Foreign Exchange Euro/Dollar Dollar/Yen Pound/Dollar Commodities 57

58 Allegiant Private Advisors Wealth Management Martin Kossoff, CFP, AIF Principal Chairman Kristina Vorndran, CFP Paraplanner Melissa Walsh, CFA, CFP Wealth Advisor Carl Watkins, CFP, CDFA, AIF Principal Wealth Advisor Director Investment Management Paul Cantor, CFA, CFP, AIF Principal Chief Operating Officer Cameron Dees Research Assistant Benjamin Jones, CFP, AIF Principal President Chief Investment Officer Luke Nicholas, CFA, CFP Principal Portfolio Manager Client Services Maura Comerford Operations Specialist Kristina Eastmond Operations Manager Lynda Franklin Executive Assistant Helen Raymond Senior Operations Specialist Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Russell 3000 is a market capitalization weighted equity index encompassing the 3,000 largest U.S. stocks. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The Emerging Markets Index is a float-adjusted market capitalization index that consists of indices of 21 emerging economies. The CBOE Volatility Index is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. The Shanghai Composite Index is a stock market index of all stock (A shares and B shares) that are traded at the Shanghai Stock Exchange. The ISM Manufacturing Index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The Non-Manufacturing ISM Report on Business is a purchasing survey of the United States service economy, published by the Institute for Supply Management. Investments involve risk including possible loss of principal amount invested. Commodities investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future. Advisory services offered through Commonwealth Financial Network, A Registered Investment Adviser.

59 Proprietary Research Visit AllegiantPA.com to Subscribe February 2019