The Market Today

1Q Brings First Quarterly Loss for Stocks Since 3Q15; 2Q Starts on Same Note


by Craig Dismuke, Dudley Carter

Vining Sparks Economic Outlook Update – Thursday April 5, 10:00 a.m. CT:  Vining Sparks will host its 2nd Quarter Economic Outlook Update during which we will discuss the significant increase in market volatility this year.  We will discuss why the increased volatility is a symptom of a larger underlying challenge to economic stability.  To register, click here.

 

TODAY’S CALENDAR

Auto Sales Expected to Continue Decline Following Hurricane-Boost:  Today’s calendar will bring the March vehicle sales data.  The pace of sales is expected to decline from 16.96 million units annualized to 16.90, continuing the decline from late-2017’s hurricane-boosted sales figures.  This is the last month GM will report sales making the data series less useful going forward.  They will reportedly begin providing sales data on a quarterly basis instead, arguing that month-over-month sales tallies are misleading.

 

TRADING ACTIVITY

Yesterday – Second Quarter Starts With More Volatility As S&P Closes On Early February Lows: After registering their first negative quarter since the third quarter of 2015, U.S. stocks sold off anew to start April as technology companies continued to face difficulties and China moved forward with duties on certain U.S. imports. The Nasdaq fell 2.74% to lead the declines while the S&P 500 dropped a smaller 2.24% and the Dow slid 1.90%. Believe it or not, those weren’t the day’s low points. Earlier in the session, the Nasdaq had tumbled more than 3.6% into correction territory, the S&P had lost 3.3%, and the Dow was down by 3.1%. The S&P 500 finished on top of its February low and below its 200-day moving average. The consumer discretionary sector led all others lower as Amazon’s market cap continued to absorb in the impact of the President’s tweets about his disdain towards the company’s operating practices. Seven of the remaining 10 sectors also fell more than 2%. Elsewhere, the risk-off tone dented oil prices and drove up the cost of gold. Treasury yields erased an overnight rise to finish down, but only modestly so. The 2-year yield dropped 2.0 bps to 2.25% while the 10-year yield lost 0.9 bps to 2.73%.

 

Overnight – Yields Up and U.S. Futures Recover Despite Soft Global Equity Trend: Global markets have directionally tracked yesterday’s U.S. lead although losses seen across Asia and Europe are somewhat less severe. After the S&P 500 crossed below its 200-day moving average for the first time since the Brexit melee (June 2016), stocks in Asia finished lower by 0.1% and the Stoxx Europe 600 is off 0.5% midway through the session. Despite holding in negative territory, indexes in both regions are off of their overnight lows. The slight recovery abroad was likely aided by U.S. futures which have traded firmer for the entire overnight session. The bounce in futures trading is unsurprising considering the pressure it takes to move significantly past a key technical indicator such as the 200-day moving average. Amid the equity stabilization and after falling to a nearly two-month low yesterday, the 10-year Treasury yield has added just over 2.4 bps. The 5-year and 7-year notes made similar moves while the 2-year added a smaller 1.6 bps.

 

NOTEWORTHY NEWS

ISM Manufacturing and Construction Spending Miss Estimates: Monday’s economic releases were disappointing relative to estimates, as construction spending rose just 0.1% (expected +0.4%) and the ISM Manufacturing Index edged down to 59.3 (expected 59.6). Weaker public spending, down 2.1% MoM primarily on lower non-residential building, was the biggest driver of the miss and in contrast to a recent run of positive readings. A 1.5% MoM rebound in non-residential construction accounted for most of the 0.7% private-sector gain, while residential activity improved by a smaller 0.1%. In the ISM data, the headline cooled more than expected in March but did so from its strongest level since May 2004. Most of the key components were also lower when compared to February but held at overall solid levels. One outlier was the prices paid index which rose for a fourth month to its highest level since April 2011.

 

ICYMI – March 2018 Monthly Review: Market volatility remained a major story in March as fears of a possible trade war and issues affecting the tech sector added fuel to February’s fire sparked by a hot hourly earnings report. U.S. stocks finished with back-to-back monthly losses for the first time since October 2016 and wrapped up their first negative quarter since the third quarter of 2015. The uneasiness on trade and resultant market volatility weighed on longer yields and sent the 10-year Treasury yield down 12 bps on the month. Shorter yields, however, rose after the Fed hiked to 1.50% to 1.75% and added an additional 1.5 hikes to their projections through 2020. The outworkings of the divergence in maturity performances led most measures of curve shape that include the 2-year note to new cycle lows. Click here to view the full recap.

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