Both the S&P 500 and Nasdaq reached record highs last week. Only the Russell 2000 ended the week in negative territory. While the economic news last week was mixed, a strong labor report was apparently enough to offset stagnant price and wage gains in April. While the Fed didn’t see enough economic growth to raise interest rates, the Committee expects the economy to continue to strengthen over time. Prices fell for 10-year Treasuries, pushing yields higher. Overall, equities performed fairly well, despite falling oil prices and the petition of Puerto Rico for federal relief from its $51 billion debt.
Given this, BWFA continues to focus on a growth bias and we remain cautiously optimistic about stocks and wary of longer term bonds as a source of income.
Last Week’s Headlines
- The FOMC decided to maintain interest rates at their current level following its meeting last week. The Committee noted that, while the labor market has continued to strengthen and business fixed investment has firmed, household spending rose only modestly in March with consumer prices falling and inflation continuing to run somewhat below the Fed’s 2.0% target rate. However, the Committee views the slowing in economic growth during the first quarter as likely to be transitory and expects that economic activity will expand at a moderate pace, labor market conditions will strengthen, and inflation will stabilize around 2.0%. The FOMC had earlier suggested that interest rates would be increased three times during the year. It may be backing off that timetable, as the actual path of the federal funds rate will depend on the economic outlook based on incoming data.
- The employment sector picked up the pace in April following a lackluster March as total employment increased by 211,000 for the month (79,000 in March). Job gains occurred in leisure and hospitality, health care and social assistance, financial activities, and mining. Over the year, the unemployment rate has declined slightly.
- Inflation receded in March as consumer spending noticeably slowed.
- Although slightly lower in March, year-to-date, the goods and services deficit increased $9.4 billion, or 7.5%, from the same period in 2016. Exports increased $38.0 billion, or 7.1%. Imports increased $47.5 billion, or 7.1%.
- Purchasing managers noted a slowdown in manufacturing production in April.
- Economic activity in the non-manufacturing sector grew in April, including wholesale trade, utilities, arts and entertainment, mining, retail trade, health care, real estate, and accommodations and food. Overall, the non-manufacturing sector showed renewed strength following a slowdown in March.
BWFA Eye on the Week Ahead
The pace of inflation slowed in March. How inflation trended in April will be revealed through this week’s Consumer Price Index, Producer Price Index, and retail sales report.
Although there are some signs of slowing economic indicators, signs still point to good moderate growth through this year and beyond. BWFA will continue to downplay energy which had been a large, over weighted holding in prior years. We have been more focused on “growth” versus “value” stocks recently which has produced solid performance for clients across all of our investment models.
Enjoy your week with family and friends!