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The Markets This Week

March 21, 2018 | Weekly Commentary

The market is so discombobulated right now that it can’t even decide what it’s afraid of.

What do we mean? When the Standard & Poor’s 500 index suffered its first correction since the beginning of 2016 last month, the cause was easily identified—a good old-fashioned inflation scare caused by a larger-than-expected increase in wages and a rapidly rising 10-year Treasury yield, which almost hit 3%.

Fast-forward more than a month, and those fears seem almost quaint. February’s payrolls print on March 9 alleviated those inflation concerns when wages rose far less than expected, but that hasn’t relieved the tension in the market, never mind the S&P 500’s 1.7% rise that day.

Consider this past week’s returns. The Dow Jones Industrial Average dropped 389.23 points, or 1.5%, to 24,946.51, while the Nasdaq Composite declined 1%, to 7481.99. The S&P 500 fell 1.2%, to 2752.01, after slipping for four consecutive days to start last week.

The funny part is that each day’s drop was caused by an apparently different reason—Special Counsel Robert Mueller’s subpoena of the Trump Organization, reports of new tariffs being planned for China, the exit of Secretary of State Rex Tillerson.

Our favorite, though, has to be the response to this past week’s retail-sales data. The number was bad—sales dropped 0.1% in February from January, its third consecutive monthly decline—and one that came despite the recent tax cuts that were supposed to get consumers spending again. The fact that the Atlanta Fed’s GDPNow forecast for first-quarter gross-domestic product growth dropped below 2% only added to the concern, and caused the 10-year Treasury yield to drop as low as 2.80%. With that, concerns about too much growth were replaced by fears there’s too little, a flip-flop worthy of a good politician.

It’s also a sign that the market has yet to recover from February’s correction. “The markets are jittery,” says Todd Lowenstein, chief equity strategist at HighMark Capital Management, who notes that investors are treating each incoming data point as the start of a new narrative.

Still, this isn’t unusual when markets are going through a corrective phase like they are now, writes Michael Shaoul, CEO of Marketfield Asset Management. That means there’s a good chance that if the market tumbles even more, it won’t be because of higher bond yields and concerns about inflation. “If a full retest of the March or February low is required, it may be accompanied by a very different set of headlines,” Shaoul explains.  Was last week just a sneak preview?

(Source: Barrons Online)

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