The Week In Review


The S&P 500 dropped 1.9% on Friday, as weak manufacturing data out of Europe added to worries about the pace of global economic activity. Growth concerns were reflected by another drop in U.S. Treasury yields, the underperformance of the cyclical sectors, and a pullback in oil prices ($59.01/bbl, -$0.94, -1.6%). Friday's decline sent the S&P 500 back to the 2800 level.

The Dow Jones Industrial Average lost 1.8% and the Nasdaq Composite lost 2.5%. The domestically-oriented Russell 2000 lost 3.6%, pressured by concerns that global economic weakness will catch up to the U.S. sooner rather than later.

Ten of the 11 S&P 500 sectors finished lower, led by materials (-3.0%), financials (-2.8%), and energy (-2.6%). Conversely, the utilities sector (+0.7%) was the lone group to finish higher.

Germany's Manufacturing PMI fell to 44.7 from 47.6 in February, serving as a reminder that output in a major export center remains weak. France's Manufacturing PMI (actual 49.8; prior 51.5) fell below 50.0, which indicated that the country's manufacturing sector was also in contraction.

The weak data sent investors flocking to safe-haven bonds, which drove the yield on the 10-yr German bund (-0.011%) into negative territory for the first time since 2016. The lower yields in Europe likely contributed to increased buying interest in U.S. Treasuries, which helped drive yields even lower.

The 2-yr yield dropped eight basis points to 2.32%, and the 10-yr yield dropped eight basis points to 2.46%. Strikingly, the spread between the 3-month yield (2.45%) and the 10-yr yield briefly inverted for the first since 2017. Like Treasuries, the dollar benefited from the flight to safety, lifting the U.S. Dollar Index 0.2% to 96.65.

In earnings news, Dow component Nike (NKE 82.19, -5.82, -6.6%) didn't help ease growth concerns after it reported underwhelming growth in North American sales. Nike did beat earnings estimates, though. Cintas (CTAS 194.55, -13.57, -6.5%) for its part missed revenue expectations.

Reviewing Friday's economic data, which included Existing Home Sales for February, Wholesale Inventories for January, and the Treasury Budget for February:

  • Existing home sales increased 11.8% month-over-month in February to a seasonally-adjusted annual rate of 5.51 million ( consensus 5.10 million) from a downwardly revised 4.93 million (from 4.94 million) in January. Total sales were 1.8% lower than the same period a year ago.
    • The key takeaway from the report is that while sales rebounded sharply on a month-over-month basis, they are still tracking below levels seen one year ago.
  • Wholesale inventories increased 1.2% in January on top of a 1.1% increase in December. Wholesale sales were up 0.5% following an upwardly revised 0.9% decrease (from -1.0%) in December.
    • The key takeaway from the report is that inventory growth continued outpacing sales growth, which should keep pressure on prices.
  • The Treasury Budget for February showed a deficit of $233.98 billion versus a deficit of $215.24 billion for the same period one year ago. The Treasury Budget is not seasonally adjusted, so the February deficit cannot be compared to the $8.7 billion surplus for January.
    • The fiscal year-to-date deficit is $544.23 billion versus a deficit of $390.96 billion for the same period ago. The budget deficit over the last 12 months is $932.27 billion.

Investors will not receive any notable economic reports on Monday.

  • Nasdaq Composite +15.2% YTD
  • Russell 2000 +11.7% YTD
  • S&P 500 +11.7% YTD
  • Dow Jones Industrial Average +9.3% YTD

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