Our goal is to keep you well informed about what’s happening in the markets and economy so you’re more in control of your financial future. Here is a brief recap of what has been going on over the last month or so and what we expect in the month ahead. As always, if you have questions or concerns, don’t hesitate to contact us.
What’s happening now:
Treasuries - In 2018, many were concerned that rising inflation, slowed economic growth, and rising interest rates could position the economy in unfavorable positions. Although the 10-year and the 2-year yield curve have held at levels not seen since 2007 (about .15-.20%), we do not anticipate sudden shifts in rates as federal interest rate policy has cooled away from increasing interest rates. Although long-term US treasury rates may sound low, they are attractive when comparing to other countries. Increased global demand in long-term treasuries will continue to be an important variable in 2019, while short-term rates, such as the 2-year, may settle closer to their historical range.
Equities - Estimated earnings declined for S&P 500 companies in Q1 2019, with the energy sector incurring the largest decline than other sectors. Healthcare and Communications sectors are poised to continue their earnings and revenue growth in 2019. Trade tariffs have made a negative impact on many industries inside the Technology sector such as Semiconductor Equipment, while other industries such as Software are poised to stay close to their expected growth track. Profit margins for the S&P 500 reported an 11.3% increase in Q4 2018 vs. Q4 2017, while earnings growth was measured at 20% during the same period. As trade tariffs and interest rates take a slight break from the spotlight, we look forward to reviewing earning, revenues, profit margins and more as companies begin reporting their Q1 results. We expect volatility to be sensitive to these reports during coming months and we remain favorable on the overall market. Earnings guidance for S&P 500 sectors has been lowered in since earlier reports at the end of 2018. In result, the forward 12-month P/E ratio has fallen below its 5-year average but above its 10-year average.
Foreign Developed - Foreign developed markets were met with uncertainty with Britain’s approach to exiting the EU. With nearly 50% of U.K. exports finding a home in the EU, Brexit is sure to have an impact on foreign developed nations. However, we believe potential contagion to the US markets will be limited in its scope as the U.K. represents about 2% of global GDP.
Looking Ahead: Commonly referenced US economic indicators required additional research this month, as surface level readings of metrics such as inflation and retail sales were of better use with additional context. Retail sales showed growth in eight of thirteen major categories, with autos and gas stations skewing numbers more than other categories. Traditional CPI, which does include food and energy had not reported an increase in December or January. However, February’s numbers reported an increase of 0.2%. Core CPI, which does not include food and energy prices due to their volatility, showed a 0.2% growth during three of the past three months. As federal interest policy turned from hawkish in 2018 to slightly dovish in 2019, we will continue to keep a close eye on retail sales and inflation as an important source of data regarding sentiment from the fed. If inflation goes up, then we will anticipate the probability of an interest hike to go with it.
Bottom Line & Course of Action: Clients Only
Your TVFP Team
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