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CCCM WEEKLY MARKET REVIEW

March 18, 2019

U.S. Markets: U.S. stocks posted solid gains for the week as the technology sector (the largest segment of the S&P 500 Index) rallied, helped by strength in Apple due to the expected announcement of a new video streaming service. The Dow Jones Industrial Average surged 398 points to 25,848, a gain of 1.6%. The technology-heavy NASDAQ Composite rallied 280 points, or 3.8%, to close at 7,688. By market cap, the large cap S&P 500 outperformed the smaller cap benchmarks by rising 2.9%, while the S&P 400 mid cap index and small cap Russell 2000 gained a lesser 1.9% and 2.1%, respectively.

U.S. Economic News: The number of Americans seeking new unemployment benefits rose to a one-month high last week, but the overall level of layoffs remained near historically low levels. The Labor Department reported that initial jobless claims rose by 6,000 to 229,000 vs expectations of a reading of 225,000. The monthly average of new claims, smoothed to iron-out the weekly volatility, fell by 2,500 to 223,750. Layoffs have risen slightly since hitting a 50-year low last fall, but they still remain far below the 300,000 threshold analysts use to gauge a “healthy” labor market. Continuing claims, which counts the number of people already receiving benefits, increased by 18,000 to 1.77 million.

The Labor Department’s JOLTS (Job Openings and Labor Turnover Survey) report revealed the number of jobs available climbed to their third-highest level on record in January, a sign that companies are still eager to add new employees even within a tight labor market. The number of job openings increased 100,000 from December to 7.58 million, with big increases in wholesale trade, real estate, and information industries. The 7.58 million job openings compares to the 6.54 million people in January who were unemployed, taking the ratio of open positions to those who seek them down slightly to 1.16 from 1.19 in December. The quits rate, rumored to be closely watched by the Federal Reserve for the “robustness” of the labor market, stayed at 2.3%, which is close to the 2.4% high this cycle. Worker willingness to quit is taken as a positive sign by economists, as it usually means the quitters see better opportunities for higher pay and advancement elsewhere and don’t fear temporary unemployment while between jobs.

The housing market got off to a slow start this year as new home sales dropped 7% in January, the Commerce Department reported. In a report delayed by the partial government shutdown, sales of single-family new homes declined to a 607,000 annual rate, missing forecasts of a 616,000 annual rate. However, the decline wasn’t as bad as the headline indicated once upward revisions for December and November were taken into account. In the details, sales fell in every region except the West. New home sales were 4.1% lower in January compared to the same time last year. In addition, the median sales price of new homes fell again to $317,200. Prices were 3.8% lower versus one year ago, reflecting a decline in demand. At the current pace of sales, there is a 6.6 months’ supply of homes available on the market—slightly higher than what is generally considered a “balanced” housing market.

After the biggest decline in 10 years, sales at U.S. retailers rebounded in January. The Commerce Department reported retail sales rose 0.2% at the beginning of the year, led by home centers and internet stores. Economists had expected only a 0.1% increase. Sales had tumbled 1.6% in December, the largest drop since late 2009. Omitting auto and gasoline sales, retail sales were up a much more robust 1.2%. Restaurants, pharmacies, grocers, and stores that sell sporting goods and hobby items also reported strong sales. While the rebound in sales was mildly encouraging, some analysts were concerned the rebound wasn’t enough. Katherine Judge, economist at CIBC World Markets noted, “What went down did come back up again, just not far enough.”

Optimism among the nation’s small business owners inched higher last month, but remained near its lowest levels since the 2016 presidential election. The National Federation of Independent Business (NFIB) said its small-business optimism index rose 0.5 point to 101.7 - up, but still the second-worst reading since December 2016. In the details, 5 out of the 10 components increased, with the sub-index “expect the economy to improve” leading with a 5-point increase. NFIB President and CEO Juanita Duggan said in its release, “Small business owners are thankful to have the government shutdown in the rearview mirror but need more certainty about the future.”

Orders for goods expected to last at least 3 years (a.k.a. durable goods) rose at the beginning of the year for the third consecutive month. The Commerce Department reported orders for long-lasting durable goods rose 0.4% in January, its biggest increase since last summer. Economists surveyed had forecast a 0.1% decline. Ex-transportation, orders dipped 0.1% due to a decline in orders for new cars and trucks. Core orders, a key measure of business investment, rose 0.8% in January marking its biggest increase since last July and reversing a decline that had seen investment fall five out of the last six months. Economist Andrew Hollenhorst at Citibank is confident that investment spending will pick up in 2019, noting “The bounce in January capital goods orders and shipments is consistent with our view that strong investment spending will continue into 2019.”

Inflation at the consumer level picked up in February, but not enough to raise concern according to analysts. Costs rose for rent, food, gasoline, and clothing last month, their biggest inflation in four months. However, the overall cost of living rose more slowly. The Bureau of Labor Statistics reported the Consumer Price Index climbed 0.2% in February following three consecutive months of flat readings. The reading matched economists’ forecasts. Over the past year the increase in the cost of living slowed from 1.6% to 1.5%. The rate of inflation has pulled back substantially after hitting a high of almost 3% last summer. Core inflation, which strips out the volatile food and energy components, ticked up a lesser 0.1% last month—its smallest advance since last summer. The annual increase in the so-called core rate also slowed a tick down to 2.1%.

Finally: Everyone has heard of a “New York Minute.” Johnny Carson said it was that brief instant of time between a Manhattan stoplight turning green and the taxi behind you honking! How about an “Internet Minute”? An “Internet Minute” is the measure of everything that happens on the internet in the space of a single minute – and it is staggering. The chart below, from research blog Visual Capitalist, brings it all together. Visual Capitalist notes that the biggest change from the prior year is a doubling of hours of Netflix streaming per “Internet Minute”!

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Figs 1-5 source W E Sherman & Co, LLC)

Any opinions are those of Chapman and Cardwell Capital Management and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. The charts and tables presented herein are for illustrative purposes only and should not be considered as the sole basis for your investment decision. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Index Definitions:

The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.

The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index.

The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

The S&P MidCap 400® provides investors with a benchmark for mid‐sized companies. The index, which is distinct from the largecap S&P 500® measures the performance of mid‐sized companies, reflecting the distinctive risk and return characteristics of this market segment.


March 11, 2019

U.S. Markets: U.S. stocks performed poorly this week with major indexes suffering declines almost every trading day. The smaller-cap indexes, which are typically more volatile, fared the worst while the technology-heavy Nasdaq Composite had its first weekly decline since late December. The Dow Jones Industrial Average shed 576 points this week to close at 25,450—a decline of -2.2%. Similarly, the NASDAQ finished down -2.5%. By market cap, the large cap S&P 500 fell -2.2%, the mid cap S&P 400 declined -3.4% and the small cap Russell 2000 dropped ‑4.3%.

U.S. Economic News: The number of people applying for new unemployment benefits fell slightly, keeping jobless claims near their lowest levels in fifty years. The Labor Department reported claims fell by 3,000 to 223,000 in the week ended March 2. Economists had forecast a reading of 225,000. The monthly average of new claims, used to smooth out the weekly volatility, also slipped by 3,000 to 226,250. Continuing claims, which counts the number of people already receiving benefits, declined by 50,000 to 1.76 million. That number is reported with a one-week delay. Thomas Simons, senior market economist at Jeffries LLC, noted that layoff activity in the private sector remained minimal. “Survey evidence suggests that employers are generally having a hard time filling positions, so they’re not particularly inclined to be letting go of the workers they currently have.”

The Bureau of Labor Statistics’ monthly Non-Farm Payrolls report (NFP) showed the U.S. added just 20,000 jobs last month, its smallest increase in over a year and a half. The number of new nonfarm jobs created was well below the consensus forecast of 172,000. Hiring was nil in the construction industry and slumped in the retail and shipping industries. Nonetheless, the pace of hiring was strong enough to put further downward pressure on the nation’s unemployment rate, which fell to just 3.8% from 4%. The NFP report showed hiring was strongest among professional firms and health-care companies. Professional firms created 42,000 new jobs and health providers added 21,000 jobs. They also have been the fastest growing industries throughout the nearly 10-year-old expansion.

Private payrolls-processor ADP reported that private hiring slowed to a three-month low last month. According to the economist who prepared the data, private-sector employment “throttled back” in February as employers added just 183,000 new jobs, compared with 300,000 in January. The gain was very close to forecasts of 180,000. In the details of the report, small firms added 12,000 jobs, medium-sized businesses added 95,000, and large companies added 77,000. The slowdown was most pronounced in retail and travel industries, ADP said. The professional-services sector had the biggest gain in February, followed by health care and education. Mark Zandi, chief economist at Moody’s Analytics, said in a statement, “Job gains are still strong, but they have likely seen their high-water mark for this expansion.” Zandi now sees GDP running at a 0.3% annual rate in the first quarter, far below the 2.6% rate reported in the final quarter of last year. This slowdown “will start to show in payroll data,” he said.

Construction of new homes, known as housing starts, surged nearly 19% in January, the Commerce Department reported. The jump brought the annual pace of housing starts to 1.23 million, higher than the 1.21 million rate forecast. Single-family starts increased an even higher 25% in January to a 926,000 rate. Meanwhile, permits to build new homes—a gauge of future building activity, rose 1.4% to an annual rate of 1.35 million, driven by an increase in multi-family housing. However, permits for single-family homes fell 2.1% in January to a pace of 812,000 units, the lowest level since August 2017, suggesting weakness in single-family homebuilding in the months ahead.

Sales of new homes ticked up in December as the housing market managed a slight gain for 2018. The Commerce Department reported new home sales ran at a seasonally-adjusted annual rate of 621,000, up 3.7% from November, but down 2.4% from the same time a year ago. The December reading beat the consensus forecast of a 600,000 rate, but prior months were given sizable downward revisions. The median sales price was $318,700, down 7% from a year ago. At the current sales pace, the housing market has 6.6 months of available supply, a bit more inventory than is generally considered to be a balanced housing market.

Companies that operate on the “service” side of the economy, which makes up roughly 70% of the U.S. economy, grew last month at their fastest pace in three months. The Institute for Supply Management (ISM) reported its Non-Manufacturing Index rebounded 3.0 points in February, the most in over a year, to 59.7 as services activity accelerated markedly. The consensus was for just a 0.5 point gain to 57.2. In the details, the index for production and new orders both rose sharply to near 65—exceptionally strong readings that are their highest in 14 years. In addition, all 18 of the industries tracked by ISM reported their business expanded in February. Joshua Shapiro of MFR Inc. summed up the report succinctly writing, “Absent a trade war with China, the signal here appears to be that all is well.”

The latest Federal Reserve Beige Book, a collection of anecdotal information on current economic conditions by each of the Federal Reserve’s member banks, found “slight” growth in many regions as the government shutdown weighed. Ten of the Federal Reserve’s 12 districts saw “slight-to-moderate” growth in late January and February, while St. Louis and Philadelphia reported “flat economic conditions”. Overall, the tone of the report was somber. The partial government shutdown led to slower activity in six of the Fed’s districts, with the impact hitting a wide range of sectors including retail, auto sales, tourism, real estate, restaurants, and manufacturing. Consumer spending was “mixed” and several districts said retail and auto sales were lower due to harsh winter weather and higher costs of credit. Analysts widely expect the Fed to hold its benchmark interest rate steady at its meeting later this month.

Finally: Is the current bull market one of the longest on record or a brand-new newborn? Well, as Mark Hulbert noted in a column on MarketWatch.com, that depends on what benchmark index(es) you look at. If you believe the widely-accepted definition of a bear market as a 20% decline in one or more of the major market averages, there have been at least two and perhaps three bear markets since 2009! The first came in 2011 as three out of the four major indexes shown below all declined more than 20%. In 2015, the Russell 2000 fell more than 20% and the NASDAQ came close. And most recently, in 2018, both the small cap Russell 2000 and technology-heavy NASDAQ Composite fell more than 20%, and the S&P 500 came within a whisker. So, though most believe the current bull has run continuously since March of 2009 and is susceptible to dying of old age, it’s possible that the current bull market hasn’t even begun to walk yet!

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Figs 1-5 source W E Sherman & Co, LLC)

Any opinions are those of Chapman and Cardwell Capital Management and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. The charts and tables presented herein are for illustrative purposes only and should not be considered as the sole basis for your investment decision. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Index Definitions:

The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.

The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index.

The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.

The S&P MidCap 400® provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500®, measures the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment.



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Peter Chapman




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