Monthly Market Insights | April 2018

US Markets

Trade jitters and growing concerns about big technology companies facing greater government regulation sent stocks on a volatile ride in March.

The Dow Jones Industrial Average lost 3.48 percent, while the Standard & Poor’s 500 Index dipped 2.69 percent. The NASDAQ Composite dropped 2.8 percent. 1

	May your choices reflect your hopes, not your fears.
Nelson Mandela, Nobel Peace Prize-winning political leader and philanthropist

The month got off to a shaky start as investors reacted to news that President Trump would impose trade tariffs on steel and aluminum imports. Subsequent reports indicated that selected nations would be exempt from such tariffs, which helped the market recover some of its earlier losses.

China Trade

Fears of a deteriorating relationship with China were soon realized as the White House announcement that it would be enacting tariffs on $60 billion in Chinese imports. Adding to the these trade woes, a rout in the technology sector stemming from data privacy issues led to the worst weekly stock market performance in two years.

The March employment report improved market sentiment, however the positive outlook did not last long. Trade war concerns zeroed in on the U.S./China relationship, causing markets to weaken once again.

If that wasn’t enough news for the market to digest, stocks were further challenged by turnover in White House staff and a tweet by the president that he might not sign a spending bill that would keep the government operating. In the end the bill was signed, much to investors’ relief.

Fed Rate Hike

Amid all the trade talk, the Fed on March 21st announced a 0.25 percent increase in the federal funds rate. The rate hike was widely anticipated and had little impact on the markets.

In the final week of the month, the markets surged higher on hopes that negotiators might avert a trade war, only to see much of the gain lost the following day. Markets ended the week on a positive note, but it fell short of preventing another monthly decline in stock prices.

Sector Scorecard

All but two industry sectors in the S&P 500 Index, Real Estate (+3.25 percent) and Utilities (+2.45 percent) ended lower, with losses in Consumer Discretionary (-4.02 percent), Consumer Staples (-2.13 percent), Energy (-1.08 percent), Financials (-5.78 percent), Health Care (-3.98 percent), Industrials (-4.47 percent), Materials (-6.31 percent), and Technology (-5.90 percent).2

U.S. Market Recap for March 2018
S&P 500 -2.69% Month ‌ -1.22% Year-to-Date	NASDAQ -2.80% Month ‌ 2.32% Year-to-Date	Russell 1000 -2.42% Month ‌ -1.14% Year-to-Date	10-Year Treasury 2.74% Month ‌ 0.34% Year-to-Date
Yahoo Finance, March 31, 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

Currently, investors are witnessing global equity markets’ sensitivity to talk of trade tariffs, and the specter of a trade war.

From the market’s perspective, tariffs could stoke inflation, lower corporate profits, and upend the “synchronized global economic growth” storyline that has helped stock prices rise to all-time record levels. Tariffs introduce uncertainty, and the markets historically have struggled during periods of uncertainty.

Trade Battle

After implementing steel and aluminum tariffs against a number of nations, President Trump announced tariffs on imports from China (these tariffs on Chinese products won’t be made effective right away: the Treasury has been given 60 days to craft a plan).

The basis for the recent announcement of China tariffs goes back to August 2017 when the federal government started an investigation of Chinese laws, policies, and practices related to American intellectual property rights and innovation. The tariffs are designed to change what the Trump Administration believes are unfair trade practices that have harmed U.S. businesses.

Ongoing Negotiations

China has announced its own set of retaliatory measures, to take effect in the event that the U.S. imposes the trade levies.

The U.S. and China are the world’s two largest economies, with trade between the countries totaling nearly $650 billion in 2016.3 While the U.S. buys much more from China than China imports from the U.S., China is an important customer for American goods and services.

A trade war between the two countries could have global repercussions. Investors will be watching closely whether negotiations over the next several weeks can prevent an escalating trade battle.

World Markets

Overseas markets did not escape the selling pressures brought on by the talk of trade tariffs, with the MSCI-EAFE Index dropping 2.43 percent.4

Major European markets were under pressure, with France, Germany, and Switzerland all closing lower. The United Kingdom slipped 2.3% in March, and is down 8% for the three months ending March 31, 2018.5

Stocks in Pacific Rim markets suffered declines as Australian stocks tumbled 4.3 percent, while Hong Kong lost 2.4 percent. Japan slipped 2.8 percent for the month and has lost nearly 6 percent since December 31, 2017.6

World Market Recap for March 2018
Emerging Markets	March	Year-to-Date
Hang Seng (China)	-2.4%	0.6%
Kospi (Korea)	0.8%	-0.9%
Nikkei (Japan)	-2.8%	-5.8%
Sensex (India)	-3.2%	-3.2%
Jakarta Composite (Indonesia)	-6.2%	-2.6%
Bovespa (Brazil)	0.0%	11.7%
IPC All-Share (Mexico)	-2.8%	-6.5%
Merval (Argentina)	-5.7%	3.8%
ASX 200 (Australia)	-4.3%	-5.0%
Europe
DAX (Germany)	-2.7%	-8.3%
CAC 40 (France)	-2.9%	-2.7%
Dow Jones Russia Index (Russia)	-2.8%	13.8%
FTSE 100 (Great Britain)	-2.3%	-8.0%
Yahoo Finance, March 31, 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

Economic growth in the fourth quarter was revised higher to 2.9 percent, up from an earlier estimate of 2.5 percent.7

Employment

Nonfarm payrolls jumped by 313,000, the fastest hiring pace since July 2016. The unemployment rate remained unchanged at 4.1 percent as Americans re-entered the workforce, pushing the labor participation rate higher by 0.3 percent to 63 percent. Wage growth, a special interest to investors in recent months, saw a modest 2.6 percent rise.8

Retail Sales

For the third-consecutive month, consumers cut back on spending as retail sales fell 0.1 percent in February. Lower spending was most felt in auto sales, though sales declines were experienced in a wide range of consumer sectors, from health products to electronics.9

Industrial Production

Output by factories, mines, and utilities rose 1.1 percent, the biggest jump in four months.10

Housing

Housing starts slid 7 percent, weighed down by a 26.1 percent drop in multifamily construction starts.11

New homes sales dipped 0.6 percent as rising prices and mortgage rates dampened affordability.12

Sales of existing homes rose 3 percent, with strength found in the upper end of the market (homes valued at $500,000 to $750,000). Homes in the lower range, $100,000 to $250,000 (40 percent of the market), experienced a slight decline.13

Consumer Price Index

The cost of consumer goods increased 0.2 percent, momentarily easing concerns that inflation might be accelerating.14

Durable Goods Orders

Orders of durable goods jumped 3.1 percent, a rate well ahead of the consensus expectation of a 1.5 percent increase. It was the largest increase since June 2017.15

The Fed

As expected, the Fed raised interest rates on March 21 by 0.25 percent, also indicating that it may raise rates another three times this year rather than two, as previously thought.

Even more surprising, the Fed raised its estimate for the pace of economic growth and indicated that the unemployment rate may decline further, and without a material impact of the inflation rate. In other words, the Fed predicts that higher economic growth may come without necessarily igniting inflationary pressures.16

By the Numbers