Market Monitor: February Mid-Month Update

Twice a month, we send clients this overview of the markets and roundup of key economic news stories. Similar to Altair Insight, it enables us to share our big-picture views while also highlighting select market returns and developments that we feel are important.

Headlines and Highlights
  • Second shutdown averted; funding battle continues: President Donald Trump signed a $333 billion funding bill into law hours before another partial government closure was to take effect. Trump’s declaration of a national emergency enabled him to obtain an additional $5.7 billion from other government sources to build a wall on the U.S.-Mexico border. The declaration provoked political and legal challenges; Trump said he expects to prevail in the Supreme Court.
  • Sticking points remain as trade war talks near deadline: Presidents Trump and Xi Jinping of China both hailed progress made by negotiators at talks in Beijing aimed at resolving the trade war, but the two sides reportedly remain far apart on key issues. U.S. tariffs on $200 billion worth of imports from China are set to rise to 25 percent from 10 percent if no deal is reached by the March 1st Trump said he might extend the trade truce if a deal appears near.
  • Record job openings highlight mostly positive U.S. economic data: U.S. employers posted the most open jobs in the 18 years records have been kept, the total rising 2.4 percent in December to 7.3 million. Coupled with a hiring surge, the data testify to a strong labor market despite a slowing pace of economic growth. On the downside, December retail sales fell 1.2 percent from the prior month, the biggest decline in nine years, although they are still up 2.3 percent year-over-year.
Chart of Interest

market monitor

Job-market jolt:  The latest rise in job openings suggests hiring will remain strong.

 Sources: Federal Reserve Bank of St. Louis, Altair Advisers
Key Takeaways
  • U.S. stocks are back on track in 2019. Through February 15th, the Standard & Poor’s 500 Index was up 11 percent for the year, up 18 percent since the December 24th bottom and within 5 percent of last September’s all-time high.
  • Smaller-company stocks are the top-performing asset class so far this year, with the Russell 2000 Index rising 16.5 percent through mid-February. Small caps were the most beaten-up category during the sell-off last fall, declining 30 percent from their peak.
  • Investor worries that drove markets sharply lower in late 2018 have been calmed by the Federal Reserve’s pause in interest-rate increases, progress in trade war talks and resolution of the government shutdown. The CBOE Volatility Index, a measure of the stock market’s expectation of volatility over the next 30 days, has fallen to its lowest level (around 15) since October 5th.
  • The dollar rose 2 percent against a basket of other currencies from late January to mid-February, reflecting the U.S. economy’s resilience compared with sluggishness in the eurozone, the United Kingdom and elsewhere. Pressured by the stronger greenback, emerging-market stocks (EEM) fell 1.8 percent in the first half of February while remaining up 6.7 percent in 2019. We believe the dollar’s steep recent ascent is unlikely to continue.
  • U.S. REITS are the second-best performing asset class in early 2019, with the Vanguard REIT Index returning 14.0 percent for the year to date. The Fed’s more dovish stance has boosted rate-sensitive stocks. REITs also got a tailwind from the Treasury Department’s clarification in January that those held by funds, not just outside of funds, also are eligible for the 20 percent deduction applied to pass-through business income that was part of the 2017 tax law.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice.