HI_Market Notes headers_4292019

The U.S. Commerce Department reported first-quarter GDP on Friday, and it was a pleasant surprise, up 3.2% compared to expectations of around 2.3%. Better net exports and inventory building were credited for much of the growth, which may or may not be sustainable.

Stocks reacted positively, with the S&P 500 up 0.47% on the day and 1.2% for the week to a record high. Earnings season continued to roll along: with about 40% of S&P 500 companies reporting, profits are on target for small gains for 1Q, providing support for the markets.

This week promises to be another eventful one for the markets, with several bellwether earnings reports; a meeting of the Federal Reserve followed by a press conference; and the release of a slew of data including personal consumption expenditures (PCE), payrolls, and the China purchasing manager index (PMI). Trade talks with China are continuing, with U.S. Treasury Secretary Mnuchin in Beijing and both sides still indicating progress.

GAIN: Active Asset Allocation
It was another pretty good week for risk markets. Led by healthcare and communications, the Standard & Poor’s 500 returned 1.2% to close at 2939, a record. Small caps were up 1.7%, as measured by the Russell 2000. Investors favored growth stocks, U.S. Large Cap up 2.45% while U.S. Large Cap Value fell -0.16%, according to Morningstar indexes.

International markets, and emerging markets in particular, have been more volatile of late as the dollar has strengthened. Broad indexes in both Europe and China showed declines in the period, with Britain’s FTSE 100 falling -0.42% and the Hang Seng down -1.68%.

PROTECT: Risk Assist
Volatility was relatively unchanged, with the CBOE VIX ending the week at a little under 13 as the market continued to move higher.

While U.S. stocks were setting records, it was a different story elsewhere, with international stocks falling modestly. The iShares MSCI ACWX declined -0.6%, and emerging markets equities were down -1.5%, including a -2.5% drop in China.

SPEND: Real Spend
The one-year spread between global stocks and bonds has stocks up 5.1% and investment grade bonds returning 5.6%. Globally, stocks have climbed 15.9% year-to-date, compared to 2.9% for investment grade bonds. Over the 3-year period, global stocks are up +11.3% vs. 2.0% for investment grade, putting global stocks up +9.3% vs. bonds. U.S. stocks are handily outperforming bonds over the past year, up 12.3% compared to 5.6%.

REITs led returns in equity yield, up 1.4%; international dividends stocks lagged, falling more than -1.4%.  Bonds rallied after three weeks of losses as the yield on 10-year Treasuries moved back below 2.5%. The Bloomberg Barclays U.S. Aggregate Bond Index was up 0.38% for the week and 2.97% year to date. High yield debt was up, supported by generally decent economic data. Emerging market debt and preferred stock were the worst performers, both about flat for the week.

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GDP Surprises, Up 3.2% in 1Q

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