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March 22, 2019

Market Commentary
by Scott J. Brown, Ph.D., Chief Economist

As anticipated, Federal Reserve policymakers left short-term interest rates unchanged and provided some details about the ending of the balance sheet runoff (slowing in May, ending in September, although a further runoff in mortgages will be offset by increased purchases of Treasuries starting in October). The revised dot plot showed that a majority of Fed officials expect to hold rates steady over the course of this year. In contrast, the federal funds futures market is now pricing in a likelihood of a rate cut by the end of the year.

U.S. investors did not appear to be rattled by ongoing Brexit difficulties, but succumbed to recession fears following weak European manufacturing sentiment data and an inverted yield curve (three-month to five-year). A simple yield curve model of recessions is now showing about a 30% chance of entering a downturn in the next 12 months. The baseline forecast is that the economic expansion will continue (the fundamentals remain sound), but the downside risks are what’s important, and there is some chance that we could talk ourselves into a recession.

Next week, the Bureau of Economic Analysis will issue revised 4Q18 GDP data on Thursday (this is called the “third” estimate, even though it’s actually the second estimate). Fourth quarter growth is expected to be revised down from 2.6% in the “initial” estimate, reflecting somewhat softer consumer spending. February personal income and January consumer spending data arrive on Friday. Farm subsidies and dividends distorted income figures in December and January, but wage and salary growth remained on a moderately strong track (although weather ought to have dampened labor income in February).


  Last Last Week YTD return %
DJIA 25962.51 25709.94 11.30%
NASDAQ 7838.96 7630.91 18.14%
S&P 500 2854.88 2808.48 13.88%
MSCI EAFE 1900.10 1874.70 10.48%
Russell 2000 1562.41 1549.64 15.86%

Consumer Money Rates

  Last 1 year ago
Prime Rate 5.50 4.50
Fed Funds 2.40 1.42
30-year mortgage 4.29 4.54


  Last 1 year ago
Dollars per British Pound 1.311 1.410
Dollars per Euro 1.137 1.230
Japanese Yen per Dollar 110.82 105.28
Canadian Dollars per Dollar 1.336 1.294
Mexican Peso per Dollar 18.861 18.636


  Last 1 year ago
Crude Oil 59.98 64.30
Gold 1313.60 1333.20

Bond Rates

  Last 1 month ago
2-year treasury 2.40 2.52
10-year treasury 2.54 2.68
10-year municipal (TEY) 3.09 3.34

Treasury Yield Curve – 03/22/2019


As of close of business 03/21/2019

S&P Sector Performance (YTD) – 03/22/2019


As of close of business 03/21/2019

Economic Calendar

March 26  —  Building Permits, Housing Starts (February)
 —  CB Consumer Confidence (March)
March 27  —  Trade Balance (January)
 —  Current Account Deficit (4Q18)
March 28  —  Jobless Claims (week ending March 23)
 —  Real GDP (4Q18, “3rd” estimate)
 —  Pending Home Sales Index (February)
March 29  —  Personal Income (February) and Spending (January)
 —  New Home Sales (February)
April 1  —  Retail Sales (February)
 —  ISM Manufacturing Index (March)
April 2  —  Durable Goods Orders (February)
April 5  —  Employment Report (March)
April 19  —  Good Friday Holiday (markets closed)
May 1  —  FOMC Policy Decision


All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc. and are subject to change. There is no assurance any of the forecasts mentioned will occur or that any trends mentioned will continue in the future. Investing involves risks including the possible loss of capital. Past performance is not a guarantee of future results. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks, which may be greater in emerging markets. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, and state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit. Taxable Equivalent Yield (TEY) assumes a 35% tax rate.

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Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments. Gross Domestic Product (GDP) is the annual total market value of all final goods and services produced domestically by the U.S. The federal funds rate (“Fed Funds”) is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Material prepared by Raymond James for use by financial advisors. Data source: Bloomberg, as of close of business March 21, 2019.

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