HIGHLIGHTS

• US stocks are up and end the week at a record.
• International stocks fall.
• Q1 GDP comes in at 3.2%, exceeding estimates.
• Social Security to go into the red.

MARKET RECAP

US stocks were up by 1.25% and international stocks fell by 0.54%. US stocks finished at an all-time high. Earnings estimates increased for 2019, 2020 and 2021 this week. That was the first time since September that estimates were increased for the next three years (back in September it was 2018-2020).

GDP

US GDP growth surprised to the upside for Q1, expanding at a 3.2% annual pace. That is up from 2.2% in Q4 and better than the consensus estimate of 2.5%. Stronger spending by state and local governments, up by 3.9%, probably due to the federal government shutdown, helped accelerate the growth. A build-up of inventories also added to the number. On the downside, consumer spending slowed to a 1.2% pace, the lowest increase in a year, and business fixed investment dropped to 2.7% from 5.4%. Investment in new housing dropped for the fifth straight quarter.

The interesting part about the result is that the outlook for Q1 was bleak at the beginning of the quarter. The initial Atlanta Fed GDPNow estimate was 0.3%. Normally, the estimates fall as the quarter goes on, but this time it went higher.

However, the 3.2% headline number may not be as good as it looks. Take away the increase in inventories, the higher government spending, and trade figures, the growth was only 1.3%.

SOCIAL SECURITY TO GO RED

Social Security’s costs will be greater than its income in 2020 as more and more baby boomers begin to retire. The fund currently has a trust fund of $3 trillion. By 2035, the trust fund will be depleted. What we have here is a problem that everyone has known about for decades, but was pretty much completely ignored by our political leaders. And whenever a politician was brave enough to actually recommend a solution, they were immediately attacked, harassed and shot down. Well, the day of reckoning is on the way.

SCOREBOARD

HIGHLIGHTS

• Watch our Quarterly Webinar here.
• US stocks fall slightly and are just under all-time highs.
• International stocks advance.
• A very good retail sales report.
• Industrial production in China was up 8.5% for March.

MARKET RECAP

US stocks fell slightly, down by 0.28%, failing to break through the September 20th high. The market is less than 1/2% from that closing high. International stocks managed a gain of 0.32%. Bonds fell by 0.07%.

There was some good economic news this week. A solid retail sales report and good industrial numbers for March in China, see below.

QUARTERLY MARKET REVIEW

Our quarterly market review/outlook was published today on YouTube. You can view it here at this link.

RETAIL SALES

Retail sales for March were up 1.64%, the increase was much higher than the consensus and it was the largest increase since September of 2017. The high number helped increase the Atlanta Fed’s GDPNow estimate of Q1 growth to 2.8% from 2.3%.

CHINA

Industrial production in China jumped by 8.5% in March from a year earlier and the economy grew by 6.4% in the first quarter. The 6.4% increase even with Q4 and just below prior quarters but gives hope that China is beginning to stabilize. Lower taxes and regulation from the Chinese government spearheaded the improvements

SCOREBOARD

HIGHLIGHTS

• US stocks were up by 0.61% and international stocks by 0.38%
• IMF cuts growth outlook
• Jobless claims hit the lowest number since 1969.
• Brexit postponed until October 31.
• ECB ready to move if need be.
• US budget deficit up by 15% at the halfway mark.

MARKET RECAP

The market finished up for the third straight week. Financials led the market higher on Friday after strong earnings by JP Morgan Chase and Wells Fargo. US stocks were up by 0.61% and international stocks advanced by 0.38%. Bonds fell by 0.11% as rates moved slightly higher.

IMF CUTS GROWTH OUTLOOK

The IMF dropped its 2019 estimate to 3.3% from 3.5% in January and 3.7% in October. Forecasts for Germany, Italy, and Mexico dropped by 0.5%. Latin America dropped by 0.6%, Canada by 0.4%, and 0.3% for the UK.

JOBLESS CLAIMS

Jobless claims dropped to 196,000. This represents the lowest seasonally adjusted number since October of 1969. Claims have now been less than 300,000 for 214 consecutive weeks, the longest streak ever.

BREXIT

The EU has agreed to postpone Brexit until October 31. The extension gives Prime Minister Theresa May more time to get Parliament to approve a deal.

ECB

ECB President Mario Draghi said that the bank is ready to take new actions if the economic outlook worsens. Draghi said the European economic slowdown will continue this year, blaming uncertainty due to threats of US tariffs on imports from Europe.

US BUDGET

The US deficit continues to blow up. Spending has been rising faster than revenue. The deficit for the first half of the fiscal year came in at $691 billion and is 15% higher than last year. As we have written before, the deficit should be going down as the economy expands, not up.

SCOREBOARD

HIGHLIGHTS

• US stocks were up by 2.12% and now less than 1% off the all-time high.
• A pair of positive manufacturing reports gave investors hope that the worldwide slowdown might be reaching a turning point.
• The inverted 3m/10yr yield curve reverts to normal status.
• Trump nominates Herman Cain to the Fed, making it two political partisans in a row.
• Still no Brexit deal, another extension requested.
• A solid jobs report.

MARKET RECAP

Stocks had a big week, advancing by 2.12% and finishing up on four of five days. International equities moved up by 2.39%. Bonds declined by 0.39% on slightly higher interest rates. The week got off to a good start on Monday on a pair of positive manufacturing reports that gave hope that the worldwide slowdown might be reaching a turning point. The US ISM and the Chinese PMI both turned up (details further below). US stocks are now only 0.76% off their all-time high.

Stocks were also helped when the spread between the 3-month treasury bill and the 10-year bond reverted back to a normal status where the 10-year yield is greater than the 3-month.

ISM

The Institute for Supply Management’s (ISM) purchasing managers index (PMI) increased in March to 55.3 from 54.2 in February. A number higher than 50 is considered expansionary. New orders jumped to 57.4 from 55.5. The ISM report is considered positive in that the big decline from the August peak of 61.3 appears to have stabilized over the last few months and has now turned slightly up.

CHINESE PMI

The Chinese Caixin manufacturing PMI showed an increase in March, jumping to 50.8 from 49.9 the prior month. New orders rose to their highest level in four months. The report is a hopeful signal that the global economy will start to level off and begin to turn up again. It is only one report and European PMIs have been negative but it is a possible beginning.

FED

The administration continues to set a bad precedent that will come back to haunt the nation down the road. This week, Trump nominated Herman Cain, the former 2012 presidential candidate, to the Fed Board. Cain was active at the Kansas City Fed from 1989 to 1994, but he lacks the technical expertise that is normal for a Fed Governor. Plus, the nomination of Cain, following the earlier nomination of Stephen Moore, presents two choices that are influenced by short-term politics instead of long-term economics. No matter if the President is Trump or Elizabeth Warren, nominees should have expertise in economics and should not be hardcore partisans.

BREXIT

The Brexit disaster continues. April 12 is the deadline and the House of Commons voted down four different alternative plans this week. Prime Minister May has now asked the EU for an extension until June 30.

JOBS REPORT

The US added 196,000 jobs in March. The unemployment rate remained at 3.8%, just above a 49-year low. Average hourly wages increased by 3.2% year over year.

SCOREBOARD