Growth Worries Weigh on Market Sentiment

The major market indices finished the week broadly lower reflecting concerns over the pace of global growth and a lack of new news on the US/China trade situation.

March 11, 2019    |    By Mike Schwager

Performance for Week Ending 3/8/2019:

The Dow Jones Industrial Average (Dow) dipped 2.21%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) lost 2.41%, the Standard & Poor’s 500 Index (S&P 500) fell by 2.16% and the Nasdaq Composite Index (NASDAQ) shed 2.46%. Sector breadth was negative with 9 of the 11 S&P sector groups finishing lower. The Healthcare sector (-3.87%) was the worst performer followed by Energy (-3.86%) and Industrials (-2.86%).

Index* Closing Price 3/8/2019 Percentage Change for Week Ending 3/8/2019 Year-to-Date Percentage Change Through 3/8/2019
Dow 25450.24 -2.21% +9.10%
Wilshire 5000 28402.08 -2.41% +10.30%
S&P 500 2743.07 -2.16% +9.42%
NASDAQ 7408.14 -2.46% +11.65%

*See below for Index Definitions

MARKET OBSERVATIONS: 3/4/2019 – 3/8/2019

The major market indices finished the week broadly lower reflecting concerns over the pace of global growth and a lack of new news on the US/China trade situation. Mixed US economic data and worries that the market may have moved too far, too fast added to the negative sentiment.

Global growth concerns were front and center throughout the week. After growing by 6.6% in 2018, the slowest pace since 1990, Chinese officials slashed their growth estimate for the world's second largest economy to a range of 6% to 6.5%. The forecasted range is the weakest prediction in three decades and reflects the impact of weakening domestic demand and the damaging trade spat with the United States. China also announced that exports in February plunged more than 20% on a year-over year basis, the most in three years.

Europe’s economic conditions also continued to weaken. At the conclusion of the European Central Bank (ECB) meeting, the central bank said it would defer interest rate hikes and offered banks a new round of cheap loans in an attempt to jumpstart economic growth. At the press conference following the meeting, ECB President Draghi said, “we are in a period of continued weakness and pervasive uncertainty.” Draghi also offered a new economic forecast, cutting 2019 growth to just 1.1% from 1.7% previously.

The news of slowing growth out of China and Europe was underscored by an update from the Organization for Economic Cooperation and Development (OECD) who reduced the outlook for global growth. The organization now sees the global GDP advancing 3.3% this year and 3.4% in 2020 (vs. its prior forecast of 3.5% growth in both years). "Economic prospects are now weaker in nearly all G20 countries than previously anticipated," the OECD said. "Vulnerabilities stemming from China and the weakening European economy, combined with a slowdown in trade and global manufacturing, high policy uncertainty and risks in financial markets, could undermine strong and sustainable medium-term growth worldwide."

Trade – No New News: After making solid progress over the past few weeks, news flow surrounding the trade spat with China was minimal last week. Late in the week, Terry Branstad, the U.S. ambassador to China, told the WSJ that the U.S. and China have yet to set a date for a summit to resolve their trade dispute, as neither side feels an agreement is imminent. "Both sides agree that there has to be significant progress, meaning a feeling that they're very close before that happens," Branstad said. "We're not there yet. But we're closer than we've been for a very long time." While Branstad’s statement cast some doubt about a near-term resolution, it still appears that a deal is more likely than not.

Payroll Data Disappoints: On Friday, the Labor Department reported that nonfarm payrolls expanded by a paltry 20K in February, well below the 180K expected by economists and the smallest gain since September 2017. The unemployment rate fell to 3.8% (from 4.0%) while average hourly earnings rose a better than expected 0.4% for the month and by 3.4% on a year-over-year basis. While the headline nonfarm payroll number was certainly disappointing, the report follows a much higher than expected gain of 311K jobs during the month of January. Monthly payroll data is very volatility, so it is best to look at trends. Using the three-month average, jobs have expanded at a very respectful pace of 186K. The February data was also likely impacted by weather trends and fallout from the government shutdown, suggesting jobs growth should rebound in coming months.

Beige Book: The Fed released its periodic Beige Book report on Wednesday. The report, which is based on anecdotal information collected by the 12 regional Fed banks through February 25, noted the U.S. economy cooled in the first two months of 2019, with growth characterized as “slight-to-moderate” across most of the country in a Federal Reserve survey. “About half of the districts noted that the government shutdown had led to slower economic activity in some sectors,” according to the report. The report also noted that consumer spending was also held back by harsh winter weather and higher costs of credit. Manufacturing strengthened, but companies reported “concerns about weakening global demand, higher costs due to tariffs and ongoing trade policy uncertainty.” The report seems to support the decision by the Fed to take a “patient” approach on future interest-rate hikes amid a healthy, but slightly slowing, economic expansion.

Elsewhere on the Fed front, NY Fed President John Williams sounded a dovish tone in a speech at the Economic Club of New York. Williams said that the central bank "can afford to be flexible" on raising interest rates amid ongoing U.S. economic uncertainty. "The base case outlook is looking good, but various uncertainties continue to loom large. Therefore, we can afford to be flexible and wait for the data to guide our approach," according to his prepared remarks. Williams added that such a data-driven approach is the key reason that the interest rates were held steady at the most recent FOMC meeting.

Near-term Holding Pattern Likely: There appears to be little in the near-term to shift the macro narrative and as such, the broader markets are likely to remain in a holding pattern. The next macro events/conditions that will likely be needed for the market to break out to the upside, include; 1) stabilization in forward earnings estimates, 2) clarity on the Fed’s balance sheet wind down (likely to come at the 3/20 FOMC meeting) and 3) resolution in the US/China trade war (this could come late March/early April when Trump/Xi are tentatively scheduled to meet in Florida).

Outlook: We maintain a bullish tilt towards the market and continue to believe there is money to be made over the coming quarters. However, the strong start to the year has led to overbought conditions and a period of near-term market consolidation would not be surprising. If the market were to enter into a period of consolidation – we would view it as healthy – as it would likely set the stage for the next leg higher. Our view is that as long as the economy and earnings continue to grow – which remains our base-case scenario—equity prices should ultimately follow suit.

The Week Ahead: The data calendar will take center stage this week with inflation and retail sales in the spotlight. January retail sales will be released on Monday followed by the February consumer price index (CPI) on Tuesday and the February producer price index (PPI) on Wednesday. Other economic reports of interest include; January durable goods orders January construction spending, January new home sales, the March Empire State manufacturing survey, February industrial production, and the University of Michigan’s March consumer sentiment index. Fourth-quarter earnings season continues to wind down with just five members of the S&P 500 scheduled to report results. The Fed speaking calendar will be light during the coming week reflecting the traditional blackout period ahead of the upcoming March 19 & 20 FOMC meeting.


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

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