Markets were closed on March 30 for Good Friday, but in the four days of trading, stocks recovered some of this year’s losses. For the week, the S&P 500 added 2.09%, the Dow gained 2.67%, and the NASDAQ increased by 1.03%. International stocks in the MSCI EAFE grew 0.81%.
In this report, we will consider findings from last week and offer some perspective on the data.
What We Learned Last Week
• The Economy Expanded More Than Thought
We received the final reading of 4th quarter 2017 Gross Domestic Product (GDP), and the numbers were higher than expected. Between October and December last year, GDP grew at a 2.9% annualized rate. In particular, consumer spending contributed significantly to our economic growth.
• Consumers Remained Confident
Consumer Sentiment readings reached a 14-year high in March and may be a sign that spending was also on the rise last month. Meanwhile, the Consumer Confidence report showed slightly lower readings than in February but continued to stay high. Though respondents’ confidence in the stock market wavered, their strong assessments of the labor market helped maintain solid numbers.
• Personal Incomes Rose
Personal income grew 0.4% in February and has increased 3.7% over the past 12 months. Consumers also spent more money, and data on personal debt and financial obligations indicates that they still have more room to spend.
Examined together, this data seems to indicate that consumers are confident about the economy and their job prospects—and are continuing to earn and spend more. Considering that approximately 69% of the U.S. economy comes from consumer spending, these developments should be positive news.
While the talking heads sort out the news stories of the day, the underlying technical data has its own story to tell. Last week the 200-day moving average of the S&P500 appears to have held. As of this writing, the stock market is being driven down by the technology sector, primarily by heavy selling of the FAANG stocks (Facebook, Amazon, Apple, Netflix, and Google). The performance of these stocks has a heavy influence on the overall stock market averages. Currently, our president seems to have a burr in his saddle for Amazon. While his facts on the issue are somewhat muddy his rhetoric is clear, and in the absence of earnings season his tweeting is currently driving sentiment. Ultimately, in the next few weeks we will begin to hear from corporate America as to how they are doing and most expect these reports to be good.
Consider that markets appear technically oversold, and that corporate earnings continue to climb, and the underlying data doesn’t appear things are going to collapse. Corporate balance sheets — and mega-bank balance sheets, for that matter — look nothing like they did in 2008.
This may sound optimistic, but it seems wise to bias toward the strong underlying economic data over the shorter-term headline risks of this market. That said, every market environment has risks, and no economy is perfect. We are here to help you navigate your finances and make sense of developing news. If you have any questions, contact us any time.
Monday: PMI Manufacturing Index, ISM Mfg Index, Construction Spending
Tuesday: Motor Vehicle Sales
Wednesday: ADP Employment Report, Factory Orders, ISM Non-Mfg Index
Thursday: Jobless Claims
Friday: Employment Situation
Thought of the week: