Market Commentary - Week Ending 3/30/2019
- Stock markets around the world closed higher this week wrapping up a great first quarter
- Lyft goes public with a very successful first day of trading
- Housing prices fell in 14 of the 20 cities in the most recent month
Market Performance Summary
Notable Market Headlines
Stocks rallied around the world as fears about slowing global economic growth appear to have eased. In addition to markets moving higher, volatility has generally continued to ease since the start of the year also helping ease the nerves of investors.
At the close of the week, U.S. small stocks posted the strongest performance with a gain of +2.3%, nearly doubling the gains of U.S. large stocks at +1.2%. Year-to-date this puts small stocks in the lead up +14.3% while large stocks are up +13.0%.
This week the tech-heavy NASDAQ 100, a performance measure of larger tech stocks, gained just +0.7%, lagging behind both the Dow Jones Industrials +1.7% gain and the S&P 500’s +1.2%. This is contrary to the year-to-date performance as illustrated in the accompany graph. As shown, technology stocks have been the best performing sector, up +19.4%, with industrials a close second at +16.5%.
One of the biggest stories of the week was the much anticipated initial public offering of ride-sharing company Lyft (LYFT). There is much debate around this company as well as its much larger competitor Uber which is expected to go public as well in the very near future.
As the accompanying financial highlights show, revenue has been surging higher up +103% in 2018! The challenge is that expenses such as R&D are also surging resulting in growing losses. The question is whether or not these companies are money-losing organizations that will never make profits that justify their high valuations or if their rapid growth is just the very beginning of what could be revolutionary in the transportation industry. The votes were in on Friday when Lyft’s stock priced at $72 per share, rallied to a high of $87 and fell to $78.29 by the closing bell. Investors today are clearly thinking the future is bright for this company.
International markets were higher for the week but continue to lag behind the performance of U.S. markets in 2019. International developed markets were higher by +0.9% for the week now with a year-to-date gain of +10.3%. Emerging markets had a stronger week gaining +1.2% but a lagging slightly for the year up +9.9%. Of the largest markets both in the developed and emerging markets, Turkey’s is the only one with a loss year-to-date of just -1.2%.
Two of the three non-traditional asset classes we track have had a strong start to 2019. Real estate stocks have gained +15.0% for the year adding another +1.2% to the gains this week. These stocks have clearly been helped by falling interest rates. Commodities have also done well up +13.8%, gaining just +0.1% for the week, helped by the price of oil rising from about $55 at the start of the year to $68 per barrel today. Gold has been the obvious laggard as investors are showing no signs of fear about inflation. It is up just a fraction of a percent in 2019.
Bond prices moved higher by +0.3% pushing yields down further. The benchmark 10-Year U.S. Treasury bond now yields 2.406%, down from 2.442% last week and 2.684% at the end of the year. There is wide expectations that economic growth is slowing globally and that the Federal Reserve may actually lower rates later this year.
PVH Corp. (PVH), the apparel company that is parent to brands such as Calvin Klein and Tommy Hilfiger, reported quarterly results that were above Wall Street expectations. In spite of revenue declining by about -1% to $2.5 billion, earnings per share, after one-time adjustments, were up +16.4%. At the closing bell on Friday the stocks was up +13.8% for the week, making it the best performing stock in the S&P 500, and higher year-to-date by +31.2%.
CarMax Inc. (KMX), an auto dealership owner with more than 200 locations, reported numbers for the quarter that were better than expected. Earnings per share surged +68.7% and topped Wall Street estimates on sales there were up +5.7%, helped by a +19.9% growth in sales of its extended protection plans, but did fall short of expectations. The company sold 180,207 used cars during the quarter alone with used car sales generally making up more than 84% of its total sales. The stock jumped on the news closing the week higher by +13.3%.
Centene (CNC), a healthcare company focused on offering government sponsored programs such as Medicare and Medicaid, announced plans to acquire WellCare Health Plans (WCG) in a deal valued at more than $17 billion. WellCare’s stock jumped +11.5% for the week due to the price premium Centene is paying while Centene’s stock dropped -7.1%. In spite of the drop in Centene’s price, the accompany graph illustrates its great performance the past 5 years, up +220%, when compared to the average performance of stocks in the healthcare industry up only +71%.
Nielsen Holdings (NLSN), the TV ratings giant, has been under pressure the past few years struggling to grow earnings. Blackstone (BX), a massive private equity firm, had intentions to purchase the company but was reported to have backed out this week. Since the company’s last earnings report Wall Street has been bringing down expectations for 2019. All of this has resulted in the stock being down more than 50% from its 2016 high falling another -11.9% for the week.
Economic Indicator - Reported
Housing starts fell almost 9% coming in at 1.162 million units annualized which was below the previous month’s numbers and lower than forecast by economists. Housing activity dropped in all regions of the country except the Midwest that saw starts up +27%.
New homes sales jumped came in stronger than expected at an annualized pace of 667,000. This was 4.9% higher than the month before but only fractionally above year ago levels.
Home prices continue to increase but at a slowing pace as measured by the Case-Shiller home price index. Prices in the 20-city index were up +4.3% compared the same period last year. Although the year-over-year numbers are higher, prices in the most recent month actually were lower in 14 of the 20 cities.
Consumer Confidence eased in the most recent month coming in well below forecasts and the prior month’s reading. This is approaching the lowest reading during the past 12 months impacted by Americans’ concern about the state of business and their ability to find a job.
Economic Indicators – Upcoming
The following economic data is expected in the coming week:
- The monthly employment report is expected to show the economy adding 173,000 new jobs rebounding from last month’s surprising low 20,000 with unemployment expected to remain unchanged at 3.8%
- Retail sales are expected to have rising by +0.3% in February
- Economists are forecasting a drop in Durable Goods Orders by -2.0% in February