Weekly Expert Market Perspectives Park Avenue Securities PAS

U.S. Treasury Market Flashes Recession Signal, But Consumer Remains Resilient

The stock market finished lower this week in another wild ride on Wall Street. The S&P 500 (-1.0%), Dow Jones Industrial Average (-1.5%), and Russell 2000 (-1.3%) lost at least 1.0%, while the Nasdaq Composite (-0.8%) fared slightly better.

Eight of the 11 S&P 500 sectors finished lower. The energy sector (-3.9%) led the retreat, followed by the financials sector (-2.2%) amid another steep drop in U.S. Treasury yields. The lower yields, however, benefited the utilities (+0.5%) and real estate (+0.3%) sectors, while the consumer staples sector (+1.6%) showed some strength. The Philadelphia Semiconductor Index (+1.0%) also finished higher amid some hope that the U.S. and China could still work on a trade deal.

The week began with investors continuing to seek safety in U.S. Treasuries and gold. Growth concerns, however, were temporarily set aside after the White House announced that it will delay the 10% tariff rate for some items imported from China, including cell phones and laptops, until Dec. 15. The news sparked a relief rally that quickly evaporated following another round of disappointing data from China and Germany.

The rush back to safety briefly sent the yield on the 10-yr note below the yield on the 2-yr note for the first time since 2007, which is an inversion that has preceded each recession since 1980. The average length of time between the first inversion and the start of each recession since 1980 has averaged 18 months, with the range being as little as ten months to as many as two years.

The 2-yr yield fell 16 basis points to 1.47%, and the 10-yr yield fell 19 basis points to 1.54%. The U.S. Dollar Index increased 0.7% to 98.18. WTI crude increased 0.5% to $54.89/bbl.

Understandably, the 2s10s spread inversion spooked some investors, but the resiliency of the U.S. consumer, whose spending accounts for approximately 70% of GDP, helped ease some nerves. This sentiment flowed from a 0.7% m/m increase in retail sales for July (Briefing.com consensus 0.3%) and solid earnings results and higher guidance from Walmart (WMT).

On a related note, President Trump said he delayed some tariffs (most will still go into effect on Sept. 1) to ensure consumer spending isn't hurt during the Christmas shopping season.

Separately, many institutions around the world, including the ECB, China, and Germany, were reportedly taking steps to stimulate growth if need be. This support helped foster some risk sentiment late in the week.

To download the printable version, CLICK HERE.

Past performance is not a guarantee of future results. Indices are unmanaged and one cannot invest directly in an index. Diversification does not guarantee investment returns and does not eliminate the risk of loss.

Data and rates used were indicative of market conditions as of the date shown and compiled by Briefing.com. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Each company’s security affects the index in proportion to its market value. NASDAQ Composite Index is a market value-weighted index that measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market. Dow Jones Industrial Average is a widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials, but also includes financial, leisure and other service-oriented firms. Russell 2000 Index measures the performance of the smallest 2,000 companies in the Russell 3000 Index of the 3,000 largest U.S. companies in terms of market capitalization. MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

Park Avenue Securities LLC (PAS) is an indirect, wholly-owned subsidiary of The Guardian Life Insurance Company of America (Guardian). PAS is a registered broker/dealer offering competitive investment products, as well as a registered investment advisor offering financial planning and investment advisory services. PAS is a member of FINRA and SIPC.

Provided by Briefing.com

2019-84646 (Exp 11/19)

Top