Bryn Mawr Trust Market Summary – 5/20/2019

For the week ending May 17

Economic Data: Trade War Continues

The trade saga continued last week as both China and the U.S. indicated more tariffs are potentially on the way.  The new developments follow President Trump’s prior week decision to increase levies on $200 billion in Chinese goods from 10% to 25%.

On Monday, May 13, Beijing retaliated by saying it will increase tariffs on $60 billion in U.S. goods while the U.S Trade Representative, Mr. Robert Lighthizer, announced it was laying the groundwork for a new round of potential tariffs on roughly $300 billion of Chinese imports.

Needless to say, the equity markets were off to a rocky start to begin the week while bond yields dropped across the yield curve.  Despite the tough stance from both sides, President Trump and Chinese President Xi Jinping are expected to meet at the upcoming G-20 Summit in Japan on June 28-29, 2019.

The U.S. economy has been taking the trade war in stride after growing roughly +3.0% in 2018 as well as at an annualized rate of +3.2% in the first quarter of 2019.  However, retail sales data for April 2019 indicated the U.S. economy and the U.S. consumer may be losing some steam.

In April, retail sales dropped -0.2% after rising over +1.5% the prior month.

Advance Retail Sales
12/31/2017 – 4/30/2019

Chart: Advance Retail Sales 12/31/2017-4/30-2019
Bloomberg Finance, L.P.

Consumers held back on discretionary items such as electronics and automobiles during the period.  Lower than expected tax refunds and/or higher gasoline prices may have contributed to consumers’ conservative spending in April.

Daily National Average Gasoline Prices Regular Unleaded – American Automobile Association
12/31/2017 – 4/30/2019

Bloomberg Finance, L.P.

Despite the weak start to the second quarter, we continue to believe the U.S. consumer is in a healthy position to support U.S. economic growth this year given modestly rising wages and low unemployment.  It is also worth noting that consumer confidence levels reached a 15-year high this month according to the University of Michigan Consumer Sentiment Index.

University of Michigan Consumer Sentiment Index
5/31/2004 – 5/31/2019

Chart: University of Michigan Consumer
Bloomberg Finance, L.P.

Equity Market: Trade Uncertainty Weighs on Stocks

The S&P 500 Index ended the week in the red as trade uncertainty continued to weigh on market activity.  The Index was down -0.69% led by the financial and industrial sectors dropping -2.07% and -1.85%, respectively.  The utility and real estate sectors were the best performing sectors ending the week up +1.52% and +1.45%.  The low interest rate environment provided support to these high dividend paying sectors.

For the year, the S&P 500 is up roughly +15%.

S&P 500 Index
12/31/2018 – 5/17/2019

Chart: S&P 500 Index
Bloomberg Finance, L.P.

Overseas, the MSCI EAFE Index (developed international equity) ended the week up +0.25% while the MSCI Emerging Markets Index was down -3.55%.

Fixed Income Market: U.S. Treasury Yields Continue to Fall

In fixed income, U.S. Treasury yields retreated across the yield curve last week, a familiar theme thus far in 2019.  The 2-year and 10-year fell seven (-0.07%) and eight (-0.08%) basis points, respectively, and ended the week at 2.20% and 2.39%.

Low inflation is keeping a lid on bond yields as investors price in a roughly 75% chance – according to the federal funds futures trading activity from Friday, May 17 – the Federal Reserve will need to cut interest rates before year’s end to combat the low inflationary environment.

Week Ahead: Housing Market Update

Investors will get an update on the housing market when Existing Homes Sales (May 21, 2019) and New Home Sales (May 23, 2019) are released. This data, as well as any new developments related to trade discussions, will be at the forefront of our thoughts as we approach the Memorial Day holiday weekend.

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