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February 22, 2019

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

Minutes of the January 29-30 Federal Open Market Committee showed that officials “pointed to a variety of considerations that supported a patient approach to monetary policy at this juncture as an appropriate step in managing various risks and uncertainties in the outlook,” while they waited on more information. No surprise, there was a lengthy discussion of the balance sheet. Policymakers thought that the markets had overreacted to balance sheet reduction, with stock market weakness made worse by “thin market conditions around the year-end.” Several officials felt that it would be appropriate to raise short-term interest rates if inflation rose above what was expected or if the economy simply evolves as anticipated (with risks abating).

The economic data were mostly on the weak side of expectations. Durable goods orders rose 1.2% in December, reflecting a further rebound in civilian aircraft orders, up 0.1% ex-transportation. Orders for nondefense capital goods fell 0.7% (following a 1.0% drop in November). Existing home sales fell 1.2% in January, down 8.5% from a year ago (the National Association of Realtors noted that it was too soon to see much of an impact from the rollback in mortgage rates, down nearly 60 basis points from the first half of November). The Index of Leading Economic Indicators edged down 0.1% in December, a flat trend in recent months (consistent with a slower pace of economic growth in the near term).

Next week, Fed Chairman Powell presents his monetary policy testimony to the Senate Banking Committee on Tuesday and to the U.S. House Committee on Financial Services on Wednesday. He’s not expected to cover any new ground. Economic data reports that were delayed due to the partial government shutdown will arrive. The Bureau of Economic Analysis will release an “initial” estimate of 4Q18 GDP growth on Thursday (based on available data, this falls somewhere between the usual “advance” estimate and the “2nd” estimate). Reports leading up to that report (housing starts, advance estimates of foreign trade and inventories, and factory shipments) will help to fill in the picture.


Indices

  Last Last Week YTD return %
DJIA 25850.63 25439.39 10.82%
NASDAQ 7459.71 7426.95 12.42%
S&P 500 2774.88 2745.73 10.69%
MSCI EAFE 1867.01 1828.80 8.55%
Russell 2000 1575.55 1545.11 16.83%

Consumer Money Rates

  Last 1 year ago
Prime Rate 5.50 4.50
Fed Funds 2.40 1.41
30-year mortgage 4.46 4.57

Currencies

  Last 1 year ago
Dollars per British Pound 1.304 1.396
Dollars per Euro 1.134 1.233
Japanese Yen per Dollar 110.70 106.75
Canadian Dollars per Dollar 1.323 1.271
Mexican Peso per Dollar 19.289 18.605

Commodities

  Last 1 year ago
Crude Oil 56.96 62.77
Gold 1327.80 1332.70

Bond Rates

  Last 1 month ago
2-year treasury 2.52 2.58
10-year treasury 2.68 2.73
10-year municipal (TEY) 3.34 3.48

Treasury Yield Curve – 02/22/2019

Chart

As of close of business 02/21/2019


S&P Sector Performance (YTD) – 02/22/2019


Chart

As of close of business 02/21/2019


Economic Calendar

February 26  —  Building Permits, Housing Starts (December)
 —  CB Consumer Confidence (February)
 —  Powell Monetary Policy Testimony (Senate)
February 27  —  Advance Economic indicators (December)
 —  Factory Orders (December)
 —  Powell Monetary Policy Testimony (House)
February 28  —  Jobess Claims (week ending February 23)
 —  Real GDP (4Q18, “initial” estimate)
 —  Chicago Business Barometer (February)
March 1  —  Personal Income and Spending (December)
 —  ISM Manufacturing Index (February)
 —  UM Consumer Sentiment (February)
 —  Motor Vehicle Sales (February)
March 3  —  ISM Non-Manufacturing Index (February)
March 8  —  Employment Report (February)
March 20  —  FOMC Policy Decision (Powell press conference)

 

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.

The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. An investment cannot be made directly in these indexes. The performance noted does not include fees or charges, which would reduce an investor's returns. U.S. government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.

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 February 21, 2019.