March Market Update

US Markets

Last month proved the Wall Street adage that, "Stocks climb the stairs up, but take the elevator down."

After an extended steady climb, stocks tumbled into correction territory in the opening days of February, setting the stage for one of the most volatile months in recent memory.

The Dow Jones Industrial Average lost 4.28 percent, while the Standard & Poor’s 500 Index sliding 3.89 percent. The NASDAQ Composite fell 1.87 percent.1

	Not knowing when dawn will come, I open every door.
Emily Dickinson, American poet

In just six trading days, stock prices had undergone an extraordinary roller coaster ride on their way to a ten percent market correction. To illustrate just how wild the price swings were: the Dow Industrials traveled 22,000-plus points over the course of February’s first full week of trading.2

Volatile Trading

Single-day declines made for dramatic headlines, especially the 1,175 point drop on February 5th. But on a percentage basis (-4.6 percent), it wasn’t even among the top 20 all-time greatest daily declines.3

Stocks did not stay down for long, as prices rebounded in mid February to record their best one-week gain in five years. Corporate profits continued to surprise to the upside.

The rally continued until a late-February testimony by new Fed Chair Jerome Powell unsettled the markets, leaving investors with losses and perhaps a touch of vertigo.

Sector Scorecard

Every industry sector in the S&P 500 Index closed the month with losses, led by Energy (-13.70 percent), Consumer Staples (-6.85 percent), and Health Care (-5.60 percent). Declines were also experienced in Consumer Discretionary (-2.17 percent), Financials (-3.66 percent), Industrials (-3.33 percent), Materials (-3.95 percent), Real Estate (-4.20 percent), Technology (-0.68 percent), and Utilities (-1.98 percent).1

U.S. Market Recap for February 2018
S&P 500 -3.89% Month ‌ 1.50% Year-to-Date	NASDAQ -1.87% Month ‌ 5.27% Year-to-Date	Russell 1000 -3.81% Month ‌ 1.31% Year-to-Date	10-Year Treasury 2.87% Month ‌ 0.47% Year-to-Date
Yahoo Finance, February 28, 2018. The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.

What Investors May Be Talking About in April

Since the 2008 financial crisis, markets have operated in an environment of low interest rates, accommodative monetary policy, and modest economic growth.

The exceptional volatility experienced in February may signal the beginning of a different narrative, one in which the upward trajectory of interest rates may rouse inflation from its long hibernation.

Justified or Exaggerated?

To gain a clearer idea of whether inflationary fears are justified, some key financial and economic indicators may bear watching closely, including the 10-year Treasury Note and other economic reports.

Yields on 10-year treasuries are important since they serve as a benchmark for other interest rates, and are an indicator of overall investor confidence. Should the yield on the 10-year Treasury Note increase too much, too fast, it may become a drag on economic activity and draw money out of the equity markets.

Economy Watch

With inflation at the forefront of investors’ concerns, the markets will be anxiously awaiting economic reports that provide clues to inflation’s path, with special attention paid to the Consumer Price Index, which gets released on March 13 and the Gross Domestic Product report, due on March 28. A strong GDP could spark inflation concerns.

World Markets

Overseas markets moved in concert with domestic markets, with the MSCI-EAFE Index suffering a decline of 3.84 percent in February.5

European stock markets were broadly lower. While economic news and corporate earnings were generally positive, Germany and U.K. posted losses. Italy, on the eve of an election, declined more than five percent.6

Markets in the Pacific Rim also closed sharply lower, with Japan slipping 4.5 percent and Hong Kong losing 6.2 percent.7

World Market Recap for February 2018
EMERGING MARKETS	FEBRUARY	YEAR-TO-DATE
Hang Seng (China)	-6.2%	3.1%
Kospi (Korea)	-5.4%	-1.6%
Nikkei (Japan)	-4.5%	-3.1%
Sensex (India)	-5.3%	0.0%
Jakarta Composite (Indonesia)	-0.1%	3.8%
Bovespa (Brazil)	0.5%	11.7%
IPC All-Share (Mexico)	-6.0%	-3.9%
Merval (Argentina)	-5.5%	10.1%
ASX 200 (Australia)	-0.4%	-0.8%
EUROPE
DAX (Germany)	-5.7%	-5.8%
CAC 40 (France)	-2.9%	0.1%
Dow Jones Russia Index (Russia)	0.2%	13.8%
FTSE 100 (Great Britain)	3.9%	-5.8%
Yahoo Finance, February 28, 2018. The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.

Indicators

Gross Domestic Product

The economic growth rate was revised downward, from its original estimate of 2.6 percent to 2.5 percent. This expansion rate, while slower than the two previous quarters, represents an improvement over 2016’s fourth-quarter growth rate of 1.8 percent.8

Employment

Employers added 200,000 jobs in January, keeping the unemployment rate at 4.1 percent -- the lowest level in 17 years. Wage growth turned higher, increasing 2.9 percent over the last year, the biggest jump in pay since June 2009.9

Retail Sales

Retail sales declined 0.3 percent -- the largest drop in 11 months. Despite the pullback, sales in January were higher by 3.6 percent compared to the same time last year.10

Industrial Production

Output by factories, mines and utilities fell for the time since the summer, shrinking 0.1 percent.11

Housing

Housing starts bounded 9.7 percent higher from the previous month, despite an exceptionally cold January across most of the country. This was the third monthly increase in the last four months.12

Sales of new homes did not fare as well, falling 7.8 percent -- the fourth time in the past six months that new home sales have declined.13

Sales of existing homes fell by 3.2 percent from the prior month, and declined 4.8 percent from January 2017, representing the biggest drop since August 2014.14

Consumer Price Index

Prices for consumer goods rose 0.5 percent in January, though core inflation (excluding the more volatile food and energy components) increased by a modest 0.3 percent. For the last twelve months, prices have jumped 2.1 percent, while wage growth softened.15

Durable Goods Orders

Orders for durable goods dropped 3.7 percent, dragged down by a 10 percent decline in transportation equipment.16

The Fed

Minutes of the Fed’s January meeting indicated a consensus among members that the economy was set to grow at a faster pace than they had anticipated since the last time they met, reinforcing their plans for steadily increasing rates.

The next Fed meeting is set for March 20-21, the first to be chaired by new Fed Chairman Jerome Powell.17

By the Numbers