March 19, 2018 – Weekly Market Commentary

Summary: Underlying data in the most recent US inflation report shows that prices that are more sensitive to labor market conditions fell in February to their lowest level since December 2015. The data indicate that fears of inflationary pressures may be overblown. Despite the results, the Federal Reserve is still expected to raise rates at its meeting this week. 

Summary: Larry Kudlow will be the next head of the White House National Economic Council. Kudlow has been an outspoken free trade advocate and has opposed Trump’s aluminum and steel tariffs. Trump and Kudlow have worked together in the past when Kudlow served as his informal economic advisor during the 2016 campaign. 

Summary: Average demand for 10-year US Treasury notes fell to its lowest level since 2009 despite rising yields. Government bond supplies are rising now that the Federal Reserve is no longer buying bonds and the government is cutting taxes. The increase in supply will likely weigh on the bond market this year as the Fed continues to raise rates. 

Summary: DoubleLine’s CEO Jeffrey Gundlach said that the best indicator of when the bull market will end is the 10-year Treasury note. According to Gundlach, if the yield on the 10-year hits 3% stocks will experience a significant pullback and will struggle to recover throughout the year. At the beginning of the year, Gundlach predicted that stocks will post a negative return for 2018. 

Summary: Investors have been driving short-term market volatility by focusing on short-term market moves. Many people see risks arising from trade talks and apathetic Fed comments regarding market volatility. The Schwab team believes that much of the increase in market volatility is short-term and that underlying economic health points to further growth for the current bull market. 

Summary: President Trump’s recent trade actions are unlikely to lead to a shift to risk-off investor positioning, but the potential for more stringent trade regulations to spark a global trade-war is a serious geopolitical risk. Recent statements from US trading partners do not indicate that protectionist trade measures are likely to gain traction, but if more countries begin to position themselves for a trade-war emerging markets are likely to be the hardest hit asset class.