The Market Today

Tumbling Tech Shares Keep 2018’s Story of Resurgent Market Volatility Intact

by Craig Dismuke, Dudley Carter


Economy Expands 2.9% in 4Q, Raising the Bar for 1Q Growth:  In its final revision, 4Q GDP was reported to have grown at 2.9%, up from 2.7% in its initial revision and 2.5% in its first estimate.  Personal Consumption was revised up from a stellar 3.8% to 4.0%.  Business investment was also revised slightly higher but residential investment (housing) was marked lower.  Also adding to the better growth number, inventory accumulation was revised up from $8.0 billion to $15.6 billion.  While this was a very positive quarter for the consumer and a decent quarter for inventory growth, both categories now have even higher hurdles to cross in 1Q to be accretive to overall growth.


In bad news for the 1Q18 GDP report, the February Advanced Goods Trade Balance data showed a larger-than-expected deficit.  The January goods trade deficit was also revised higher.  On the flip side, retail inventories grew 0.4% in February, another positive month, while wholesale inventories outpaced expectations rising 1.1% for the month.


Housing Indicators Point to Fractionally Better Sales Activity:  Mortgage applications for the week ending March 23 rose 4.8% on a 7.3% jump in refi apps and a 3.1% increase in purchase apps.  On a 4-week trailing average basis, removing some of the week-over-week noise, refi apps remain very low while purchase apps have rebounded a bit over the past few weeks.  All told, purchase apps remain fractionally encouraging, pointing approximately 5% YoY growth in new and existing home sales.  At 9:00 a.m. CT, the February Pending Home Sales report is expected to show a 2.0% MoM increase.



Yesterday – Good Day for Investors Short Curve Steepness or Tech Stocks: Treasury yields declined steadily Tuesday as another stock sell-off helped medium and longer maturities reach their lowest yield levels in more than a month. This week’s global stock rally ended in U.S. trading as tech shares rolled over and ruined the day for the major equities indexes. The Nasdaq sank almost 3% as the S&P dropped just over 1.7% and the Dow faltered 1.4%. In addition to tech weakness, financial companies lost nearly 2% of their value as Treasury yields tumbled through recent trading ranges and several measures of curve steepness slipped to their lowest levels in some time. The 10-year yield dropped 7.7 bps to 2.78%, below the 2.80% level considered a solid yield-support level, through its 50-day moving average, and to its lowest level since February 5. The 5-year yield fell 7.3 bps to 2.57%, its lowest since February 13. The 2-year yield slipped a smaller 3.6 bps to 2.27%. With the short end of the curve less changed, the spread between 2s and 30s fell to 76 bps, a new low since October 2007. Between 2s and 10s, the curve flattened to just over 50 bps, almost matching its lowest level of the cycle. The extra yield of 5-year debt compared with 2-year debt dropped to 30 bps and ended just shy of its lowest level since 2007.


Overnight – Tech Weakness Carries Over Into Asia and Europe While U.S. Futures Show Possible Recovery for Other Sectors: Yesterday’s breakdown in U.S. tech names has taken its toll on equity indexes in Asia and Europe but Treasurys have shown a hesitancy to push too far away from yesterday’s closing levels. The MSCI Asia Pacific Index fell 1.3% and the Stoxx Europe was down 0.1% after recovering from its worst tick that had pushed the index down 1.3% earlier in the session. Technology companies were the biggest drag on both. The Stoxx Europe 600 began to recover after U.S. equity futures turned up and moved to their overnight highs. Ahead of this morning’s GDP report, futures contracts on the Dow and S&P 500 were up more than 0.2% while tech remained weaker, down just over 0.2%. Treasury yields made another steep slide as European equities stumbled early but had pared those declines ahead of U.S. trading. The short end of the curve was hardly changed while the 10-year yield had dipped 1.3 bps to remain below 2.80% and its 50-day moving average.



Consumers Remain Confident But Details Moderate a Touch: Consumer confidence cooled unexpectedly in March after reaching a 17-year high the month before as the current assessment and future expectations both eased. Even after the decline, however, confidence remains at its third strongest level since 2000. The current assessment index declined after the share of respondents reporting business conditions as bad grew more than those who saw them as good. But the current labor market remained a non-issue. A diffusion index tracking the excess of those who believe jobs are plentiful over those who believe they’re hard to get rose to 25%, its strongest mark since May 2001. Business conditions were also expected to be weaker over the next half year and responses on the labor market were less rosy. Fewer consumers also reported that they expected to buy an automobile, home, or major appliance during the next six months. And the retail stock bulls reeled back in their expectations, with the share expecting stock prices to increase over the next year tumbling to its lowest level since the U.S. election.

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