Stocks rebounded last week after experiencing one of their worst weeks in years but ended the first quarter mostly in the red after dropping sharply in March.
The Dow lost 2.5% in Q1, its first quarterly loss in more than two years, after falling 3.7% in March despite gaining 2.4% last week. The S&P 500 fell 1.2% in the quarter and 2.7% last month after gaining 2.0% for the last week of March. NASDAQ held onto a 2.3% year-to-date gain despite losing nearly 3% in March; last week’s 1.0% gain trailed the two big-cap indexes. Tech stocks have taken the brunt of the selling the past few weeks, driven by big declines in several of the sector’s favorite and most widely-held stocks, including Facebook, Google, Microsoft and Amazon; that company found itself in President Trump’s cross-hairs last week for what he believes are its unfair business advantages.
Foreign stocks were also slightly higher last week but mostly lower for the quarter and the month. Japan’s Nikkei 225 recouped most of the prior week’s nearly 5% loss but still ended down almost 6% for the quarter and 3% for March in local currency terms. Shanghai and Hong Kong both ended down for March but the latter eked out a small quarterly gain. The Stoxx Europe 600 was off 2.3% for March and 4.7% for Q1.
Treasury bond prices were higher for the third straight week but yields ended the quarter far above where they began the year. The benchmark 10-year note closed Q1 at 2.74%, its lowest level since the end of January and down nearly 20 basis points from its 2018 high of 2.95% reached on February 21. However, that is still 33 bps above where it ended last year. Yields on government securities that mature in 10 years or less are up more than 30 bps year to date, although the 30-year bond is up only 23 bps, closing March at 2.98%.
Last week’s reports on the U.S. economy came in mostly better than expected. The Commerce Department revised fourth quarter 2017 GDP upward to a 2.9% annual growth rate, up from 2.5% previously and ahead of forecasts. That follows 3.2% growth in the third quarter and 3.1% in Q2. More recently, the Chicago Fed’s national activity index jumped to 0.88 in February, well above estimates. Consumer spending rose 0.2% in February while personal incomes climbed 0.4%, which lifted the personal savings rate to 3.4%, the highest rate since last August. The same report showed the core personal consumption expenditures price index, the Federal Reserve’s main inflation indicator, rising 0.2% versus the prior month and 1.6% compared to a year earlier, the biggest gain in a year but still below the Fed’s 2.0% target.
Consumer confidence remained at or near record levels. The Conference Board’s consumer confidence index slipped to 127.7 in March from February’s reading of 130.0, an 18-year high, while the University of Michigan’s consumer sentiment index ended the month at 101.4, its highest month-end level since 2004 although down slightly from its mid-month reading of 102.0. In housing, the National Association of Realtors’ pending home sales index rebounded 3.1% in February after falling 5.0% in January but remained 4.1% below the year-earlier level. One of the reasons for the relatively subdued sales activity recently is rising home prices. The S&P CoreLogic Case-Shiller 20-city home price index rose another 0.8% in January and 6.2% compared to a year earlier.
Reports/dates/facts/links worth paying attention to over the next week:
1. April 2: Institute for Supply Management manufacturing index for March; construction spending for February.
2. April 3: Auto sales for March.
3. April 4: ISM non-manufacturing index for March; ADP national employment report for March; factory orders for February.
4. April 5: Weekly unemployment claims.
5. April 6: Employment situation for March; consumer credit for February.
Wright Investors’ Service
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