Here’s the news of the week – and how we see it here at McAlvany Wealth Management:

Stock Rally Stalls

Stocks retreated for the second week in a row, led by Healthcare and Energy shares. The major indices lost between 2.5% and 3.7% by the close of trade on Friday. A reduction in the ECB’s 2019 growth forecast of about 0.6% (to 1.1%) and a fairly large disappointment in US non-farm payrolls (NFP) of 20,000 (180,000 was expected in February) were responsible for triggering the majority of the losses. I say majority simply because stocks were already vulnerable to an overbought condition arising from all the hype surrounding trade. Suffice it to say that the NFP report was a reality check for both stock and US dollar bulls. Up to now, they’ve believed that the US is completely immune from the economic undertow emanating overseas. Let’s face it, the only reason anyone would believe that is because of the US’s more than $400 billion in storm-related spending last year that the rest of the world went without. As that spending fades and financial conditions remain marginally restrictive, we should see more data like the NFP report – and subsequently more “catch-up” to the downside relative to our foreign friends.

Away from stocks, most sovereign debt (i.e. Treasuries, Bunds) rallied after Mario Draghi promised to keep rates unchanged for the foreseeable future. In the same vein, the dollar also rose against the euro. That trend held the metals in check until the NFP report on Friday. After the jobs report, the metals rallied to a small gain as gold added 0.39% to silver’s 0.87%. Elsewhere, it’s interesting that the Challenger Job Cut Report showed a rise of 117.2% in February on a year-over-year basis, even as the US unemployment rate supposedly fell 0.2% to 3.8%, and averagely hour earnings rose 0.4% to one of the highest levels on record. Also, US Housing Starts sprouted by 18.6% in January, offsetting a little more than December’s revised 14.0% loss. There was no apparent reason for this increase except that home-builders might be eager to make a continuation bet on December’s decline in mortgage rates.

Over the weekend we’ll hear a few words from Fed Chairman Powell on policy. Next week we’ll hopefully have more details on trade, a vote on the latest Brexit deal, US CPI, and US retail sales. There will also be a BoJ policy meeting and more about the Chinese economy in the form of factory output and retail sales. Of course, if there appears to be any weakness in such events, I will be watching for clues that the now-common bad-news-is-good-news reaction is in effect. Given that Draghi’s commitment to more stimulus (later this year in September) in the face of slower growth ended with noticeably lower stocks and higher bond prices, the US may not be far behind in the same regard.

Best Regards,

David Burgess
VP Investment Management