Momentum Remains on Bull’s Side

Easing fears around possible trade wars and a strong jobs report drove stocks higher. President Trump signed tariffs on steel and aluminum but softened his tone as the week progressed and exempted Canada and Mexico. On Thursday, President Trump accepted an invitation to meet with North Korean leader Kim Jong Un.

Weekly Returns:

S&P 500: 2,787 (+3.5%)
FTSE All-World ex-US: (+2.2%)
US 10 Year Treasury Yield: 2.89% (+0.3%)
Gold: $1,323 (+0.1%)
EUR/USD: $1.231 (-0.2%)

Major Events:

  • Monday – Amazon was reported to be in talks with big banks about establishing a checking account like product.
  • Monday – The Nordstrom board rejected an offer from the family to take the company private.
  • Wednesday – Uber said to be seeking to raise $1.25 billion in the leveraged loan market.
  • Thursday – The US asked China for a plan to cut the trade deficit by $100 billion.
  • Thursday – President Trump accepted an invitation to meet with Kim Jong Un.
  • Thursday – Cigna agreed to buy Express Scripts for over $50 billion.
  • Friday – Goldman Sachs said CEO Lloyd Blankfein will step down by the end of the year.
  • Friday – The US added more jobs than expected in February while hourly wages remained below expectations.

Our Take

This long bull market has been fueled by accommodative policy from central banks globally. So it is no wonder the market is somewhat obsessed with Fed interest rate policy. In such a time, good economic news can be interpreted as bad news and vice versa. That made Friday’s jobs report a home run. Hiring was strong which indicates prolonged economic expansion, but hourly wages were below expectations, signaling inflation may remain muted in which case the Fed can raise rates more slowly.

The work force participation rate also rose, leaving official unemployment at an impressive 4.1%. It is a widely held view that we are nearing the tail end of the expansion phase of the cycle, but these numbers are not indicative of that. Stock prices have a tendency to show weakness before the economic data, but for now both are pointed upward. February’s market volatility made investors jittery, but this week supports the idea that momentum remains on the bull’s side. Once again, perceived bad news such as trade tariffs seems to have been forgotten quickly.

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