Stock averages end five-week win streak

In a holiday-shortened week marred by the terrorist attack in Brussels and marked by low trading volumes, the S&P 500 and the Dow Jones Industrial Average were down for the first time since mid-February, ending a five-week winning streak but managing to stay in the black for 2016, if only just. The yield on the 10-year Treasury rose modestly to close the week at 1.902 percent.

The terrorist attack affected the stocks of airline and cruise companies. The share prices of energy companies also dipped as there was new concern about excess crude oil inventories, which rose to a multi-decade high. In addition, James Bullard, president of the Federal Reserve Bank of St. Louis, who just over a month ago dismissed a rate hike as “unwise” given the low rate of inflation, gave the market pause last week when he said, “You could probably make a case for moving in April,” a week after the Fed decided to stand pat (Bullard is a voting committee member). One key component of the Fed’s confidence is the low unemployment rate. The household rate for March, which will be released this Friday, is expected to remain at 4.9 percent, with an estimated 210,000 new jobs having been added. Even so, the market still puts the chance of a hike at next month’s meeting at only 14 percent.

Q4 gross domestic product (GDP) is upped again

Supporting the Fed’s case of slow but steady growth, the final revision for fourth-quarter growth came in a 1.4 percent, above the 1 percent which had been estimated, and double the Commerce Department’s initial reading of 0.7 percent. The positive news was that consumer spending, which accounts for roughly 70 percent of GDP, was revised up from 2 percent to 2.4 percent. Better still, for the full year, consumer spending grew 3.1 percent, the fastest pace since 2005. On the down side, after-tax corporate profits fell 8.1 percent from the third quarter, the biggest drop since the first quarter of 2011. For all of 2015, GDP came in at 2.4 percent, and it’s expected to be 1.5 percent for the first quarter of this year, with the advance estimate to be released by the government on April 28.

A plan for Puerto Rico?

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With looming debt payments that it may be unable to make, lawyers for Puerto Rico appeared before the Supreme Court last week to argue that it be allowed to take advantage of the bankruptcy protection offered by Chapter 9. Because of a law passed by Congress in 1984, Puerto Rico, along with Washington, D.C., is not allowed to file under Chapter 9, though no one seems to know why. As Chief Justice John Roberts said, “Why would Congress preclude Puerto Rico from Chapter 9?” Two days later, House republicans drafted a plan to help rescue Puerto Rico, but only if it satisfies certain conditions and also accepts federal oversight. The oversight, which Puerto Rico has resisted, would come from a five-person panel appointed by the president which would include at least two members who list the island as their primary residence.

Around the eurozone

A number of central banks, including the European Central Bank and the Bank of Japan, have employed the strategy of offering sub-zero interest rates. Referring to this tactic, Christine Lagarde, managing director of the International Monetary Fund, said, “If we had not had those negative rates, we would be in a much worse place today, with inflation probably lower than where it is; with growth probably lower than where we have it.” And in the latest on the potential impact of Great Britain leaving the European Union, the Confederation of British Industry said a “Brexit” could cost billions in lost economic output and claim 950,000 jobs by 2020.

China’s latest move

Responding to signs of tightening liquidity, the People’s Bank of China injected ¥110 billion into the financial system on Friday by way of seven-day reverse repurchase agreements. The move came after money-market interest rates had risen for the entire week.

Oil’s rebound

Despite the oil glut, the recent rebound in the price of oil, which has risen 50 percent from its February low, has driven the average price of a gallon of gas up 31 cents from a month ago and over $2 for the first time since Dec. 31. In February, the Energy Department had projected an average price of $1.89 this year compared to $2.43 in 2015.

Existing home sales slide, new home sales surge out West

The National Association for Realtors reported that existing home sales fell 7.1 percent in February to an annualized rate of 5.08 million from 5.47 in January, partly because lower inventories (listings were down 1.1 percent from a year earlier) have driven up prices and cut into sales. The median price of a home was $210,800, up 4.4 percent from last year. Later in the week, the Commerce Department said that new home sales rose 2 percent in February to a seasonally adjusted annual rate of 512,000, with the increase almost entirely the result of sales in the West which soared 38.5 percent; sales in the Northeast, in contrast, fell 24.2 percent. In other economic news, the government said that durable goods orders fell 2.8 percent in February after increasing 4.2 percent in January, as orders for commercial aircraft, which jumped 48.6 percent in January, fell 29.2 percent. Orders for nonmilitary goods excluding aircraft were down 1.8 percent after an increase of 3.1 percent in January. And first-time jobless claims rose 6,000 to 265,000 for the week ending March 19; the four-week moving average for the week ending March 12 was up 250 to 259,750.

A look ahead

In addition to the jobless rate, this week’s updates will include the latest on personal income, pending home sales, the S&P/Case-Shiller Home Price Index, vehicle sales, the ISM’s Manufacturing Index and construction spending. On Tuesday, investors will tune in as the Fed’s Chairwoman Janet Yellen speaks at the Economic Club of New York, hoping for clues about the Fed’s timetable for raising its rate.

This commentary was prepared specifically for local wealth management advisor by Northwestern Mutual Wealth Management Company.

The opinions expressed are as of the date stated on this material and are subject to change. There is no guarantee that the forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security. Information and opinions are derived from proprietary and non-proprietary sources. Sources may include Bloomberg, Morningstar, FactSet and Standard & Poors.

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The Dow Jones Industrial Average Index® is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

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