Monthly Economic Update for April, 2018Submitted by Cocheco Financial Group, LLC on April 6th, 2018
John Gill Presents:
“Gratitude is not only the greatest of virtues, but the parent of all others.”
Is one of your children about to marry? Are you thinking of helping the newlyweds out with the wedding costs? Rather than writing a check to the couple, consider gifting them cash and writing checks to vendors. In 2018, you can gift up to $15,000 per person without reducing your lifetime exclusion amount, and the gift will lower your lifetime taxable estate.
Through families it runs, and through bodies it flows. What is it?
Last month’s riddle:
Last month’s answer:
Yes. By using three toothpicks, you can make the Roman numeral 9 (IX).
THE MONTH IN BRIEF
DOMESTIC ECONOMIC HEALTH
The nation’s central bank lifted the benchmark interest rate slightly. Making its sixth, quarter-point hike in less than a year and a half, the Federal Reserve increased the target range on the federal funds rate to 1.50-1.75%. The dot-plot representing the consensus forecast of Fed policymakers still showed a total of three rate hikes for 2018. (Three hikes are also projected for 2019.)4
While investors fretted over possible economic backlash from tariffs, fundamental economic indicators largely delivered good news. Non-farm payrolls swelled with 313,000 net new hires in February, according to the Department of Labor; the headline unemployment and U-6 unemployment rates were respectively unchanged at 4.1% and 8.2%.5
Manufacturing output improved 1.2% in February, while industrial output was up 1.1% (and 4.4% year-over-year). The Institute for Supply Management’s manufacturing purchasing manager index climbed to 60.8 in February, rising 1.7 points. ISM’s service sector PMI declined 0.4 points in February to a still-impressive 59.5.5,6
Household spending increased by 0.2% in February according to the Department of Commerce, with household incomes up 0.4%. The two most-respected consumer confidence indices were still at lofty heights. The University of Michigan’s gauge went from 99.7 at the end of February to a preliminary March mark of 102.0, then a final March reading of 101.4; the Conference Board’s barometer declined to 127.7 from 130.0.5
As for inflation pressure, it moderated slightly: the annualized rise of the Consumer Price Index ticked up to 2.2% in February, with the annualized core CPI gain remaining at 1.8%. Producer prices, though, were up 2.8% year-over-year through February.5
GLOBAL ECONOMIC HEALTH
The United Kingdom’s path to leaving the E.U. became a bit clearer in March, thanks to new terms agreed to between E.U. and U.K. diplomats. After leaving the E.U. in March 2019, the U.K. will keep all E.U. rules in effect through the end of 2020, while forfeiting its ability to have any say in E.U. decisions. Ireland remains a question mark; an agreement signed in 1988 lets goods and people move through Ireland freely, without a formal border crossing; instituting a formal border could impede trade and travel to and from that republic.9
There were many retreats. The MSCI World index lost 2.48%; the MSCI Emerging Markets index, 2.17%. Both Indian benchmarks slipped: the Nifty 50 slumped 3.61%; the BSE Sensex, 3.56%. The Shanghai Composite lost 2.77%; the Hang Seng, 2.44%; the Nikkei 225, 2.78%. Australia’s All Ordinaries tumbled 4.06%. Argentina’s Merval dove 5.74%; Mexico’s Bolsa retreated 2.77%. The major western European indices all lost 2% or more last month: the FTSE 100 sank 2.42%; the DAX, 2.73%; the FTSE Eurofirst 300, 2.35%; the CAC 40, 2.88%; the IBEX 35, 2.44%. Russia’s Micex only fell 1.12%. In Canada, the TSX Composite lost 0.49%.10,11
Energy futures advanced significantly in March. Out in front, unleaded gasoline jumped 16.71%; heating oil gained 6.82%; WTI crude, 5.51%; natural gas, 2.40%. Oil’s rise left the NYMEX price at $64.94 at the close on March 29. Another big March jump occurred for a crop: cocoa surged 15.84%. While corn added 3.68% last month, a few other notable ag futures posted declines big and small: soybeans retreated 0.05%; cotton, 1.77%; coffee, 1.91%; wheat, 6.58%; sugar, 8.38%.12
Bitcoin had a down month. It settled at $7,903.94 on March 29, 25.92% lower than its February 28 close of $10,669.70. The U.S. Dollar Index also took a March loss, albeit one of only 0.51%; it settled at 90.15 on March 29.13,14
Three of the four key metals lost ground in March as well. Copper descended 2.69%; silver, 0.35%; platinum, 6.01%. Gold rose 0.36%. On the COMEX, gold finished March at $1,327.30; silver, at $16.27.12
A major dip for apartment construction sent total housing starts down 7.0% in February; the Census Bureau also reported a 5.7 % fall for building permits. As for home prices, the lagging S&P CoreLogic Case-Shiller Composite Home Price Index (most recent edition: January) still shows them up 6.4% year-over-year.5,15
Mortgage rates were almost unchanged last month. The average interest rate for the 30-year, fixed-rate loan was at 4.44% in Freddie Mac’s March 29 Primary Mortgage Market Survey, just 0.01% higher than on March 1. While the average interest on the 5/1-year ARM rose 0.04% in that period to 3.66%, the average interest rate for the 15-year FRM was 3.90% in both survey editions.16
LOOKING BACK…LOOKING FORWARD
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.
Investors weary from two rough months for equities have something to look forward to in April: a new earnings season begins in the middle of this month. In recent years, April has been a very good month for the market; the S&P 500 has advanced in nine of the past ten Aprils, in fact. The index has averaged a 1.5% gain in April since 1950. What will happen in April 2018 is anybody’s guess, but bulls may be reassured by such Wall Street history. In addition, a forecast from FactSet is worth noting: the stock market analytics company projects that S&P 500 firms will report an 18% increase in earnings for fiscal 2018. If that happens, it would be the strongest annual earnings growth in eight years. It is hard to imagine the stiff headwinds now on Wall Street abruptly easing up, but perhaps stocks will take a turn for the better as the second quarter proceeds.21
UPCOMING ECONOMIC RELEASES: In addition to earnings calls, investors will pay attention to these news items in April: the March ISM non-manufacturing PMI, February factory orders, and ADP’s March employment change report (4/4), a new Challenger job-cut report (4/5), the Department of Labor’s latest employment report (4/6), the March Producer Price Index (4/10), the March Consumer Price Index and minutes from the last Federal Reserve policy meeting (4/11), the University of Michigan’s preliminary April consumer sentiment index (4/13), March retail sales (4/16), March industrial output and construction activity (4/17), a new Beige Book from the Fed (4/18), the Conference Board’s latest index of leading indicators (4/19), the March snapshot of existing home sales from the National Association of Realtors (4/23), March new home sales and a new consumer confidence index from the Conference Board (4/24), March durable goods orders (4/26), the final April University of Michigan consumer sentiment index and the first estimate of Q1 GDP from the Bureau of Economic Analysis (4/27), and then March consumer spending and pending home sales and the March PCE price index (4/30).
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All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The FTSE Bursa Malaysia KLCI Index comprises of the largest 30 companies by full market capitalization on Bursa Malaysia's Main Board. The FTSE TWSE Taiwan 50 Index consists of the largest 50 companies by full market value, and is also the first narrow-based index published in Taiwan. The Korea Composite Stock Price Index or KOSPI is the major stock market index of South Korea, representing all common stocks traded on the Korea Exchange. 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The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The All Ordinaries (XAO) is considered a total market barometer for the Australian stock market and contains the 500 largest ASX-listed companies by way of market capitalization. The MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. 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