February Market Commentary

US stocks continued to bounce back from the end of last year as investors were buoyed by optimism over a US/China trade deal, a more accommodative Fed, and solid corporate earnings. Due to progress in negotiations, President Trump announced an extension to the March 1st deadline when new tariffs were to kick in on Chinese goods .  With nearly all S&P 500 companies reporting 4th quarter results, earnings are up 13% from a year earlier, well outpacing expectations.  Economic news was mixed, but still pointed to the US being in a solid position.  The January jobs report blew away expectations with 304,000 new hires, which marked the 100th straight month of job gains.  The unemployment rate ticked up to 4.0%, but was driven by the government shutdown.  Inflation remains flat and 4th quarter Gross Domestic Product grew 2.6%, which was better than expected.  However, US retail sales sank 1.2% in December, business investment declined, existing home sales fell for the third straight month, and home prices grew at their slowest pace in four years.  In February, US stocks jumped 3.52% and have surged 12.40% for the year to date.

Foreign stocks gained over the month on US/China trade optimism and corporate earnings.  To date,  4th quarter revenue for European companies has topped estimates.  However, economic news from Europe continues to show a slowing economy.  In Germany, factory orders fell unexpectedly, and industrial production fell short of expectations.  Eurozone manufacturing had its first downturn since 2013.  Because of recent weakness, the European Commission cut its forecast for eurozone growth in 2019 to 1.3% down from the projected 1.9% in November.  The Bank of England held interest rates steady at its most recent meeting as the future of the UK remains up in the air.   The next vote on a Brexit deal is expected to be in Mid-March, but still looks unlikely to pass and the potential for a new vote to possibly reverse the original vote is a possibility.  Emerging markets trailed developed markets over the month.  International stocks gained 1.91% in February and have climbed 9.52% so far in 2019.

Bonds were relatively flat over the month as interest rates edged up.  In testimony before Congress, Fed chief Powell reiterated plans for the central bank to take a slow and steady approach.  Minutes from the Fed’s January meeting showed most officials were ready to end the reduction of its $4 trillion bond portfolio this year.  They also debated whether they should hold tight at the current Fed Funds rate or consider another increase this year.  The 10-year Treasury yield rose over the month to end at 2.73% up from 2.63% to start February.  For the month, credit and muni bonds were the top performing sectors and shorter-term bonds topped longer-term bonds.  The broad bond market edged down 0.06% in February but is up 1.00% for the year to date.