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Week in Review | Week ending May 24, 2019

28 May 2019

Clint McGarvin, CFA® | Portfolio Manager/Research Analyst


U.S. stocks declined last week with large caps down a little more than 1.1% and small caps falling about 1.4%. The trade war between the U.S. and China was once again the big mover of markets this week as large caps fell for a third consecutive week. Although equities ended the week rising about 0.4% on Friday following a Thursday evening tweet from President Trump stating the trade war could be over quickly. In addition to comments on the trade war, Trump said it’s possible that Huawei would be included in a trade deal.[i] Huawei is the Chinese telecom company that has been accused by the U.S. government of being an agent for the Chinese government. Huawei is also a buyer of products from several U.S. corporations in the semiconductor and software industries among others. By placing Huawei on a list which restricts corporations from doing business with them, this hurts not only Huawei’s business but also the business of the suppliers and buyers of Huawei.

In addition to the negative news on the trade front, the economy showed faltering growth. The IHS Markit Purchasing Managers’ Index® (PMI®) for May showed business growth falling to three-year lows. The U.S. Services PMI declined to 50.9 from 53.0 while the Manufacturing PMI dropped to 50.6 from 52.6 in April. The Services PMI is now at a 39-month low and the Manufacturing PMI is at a 116-month low. New orders, a leading indicator, in the Services PMI showed a slight uptick but that rate of growth declined to just above 50, which is the dividing line between growth and contraction.[ii] Within the manufacturing sector, the underlying data showed a broad-based slowdown in expansion in output, employment, and raw materials inventories, while new orders declined for the first time since September 2009. Demand from both domestic and foreign buyers in the services and manufacturing sectors declined and exports were negative as well. Additional evidence that the economy is slowing comes in the April new orders durable goods orders declined 2.1%, while non-defense capital goods orders excluding aircraft, a proxy for business spending, dropped 0.9%.[iii]

The Fed began conducting an annual Report of the Economic Well-Being of U.S. Households in 2013. The 2018 results were released last week, and the report showed an improving state of the personal finances of U.S. households. In fact, the Fed report showed that 61% of U.S. households stated they could pay an unexpected expense of $400 from either cash, savings or credit card that will be paid off at the next statement, and this is up from 50% in 2013. Additionally, 75% of adults note that they are either okay or living comfortably, up from 63% in 2013. Two-thirds of adults are working as much as they want, signaling that they are fully employed. Despite the overall improvement since 2013, all is not rosy. Employment is also covered in the report and 10% of adults who are able and willing to work are unemployed but more than 50% of the unemployed have not looked for work over the past four weeks. The unemployed number is more than twice the level reported by the National Bureau of Labor Statistics (NBLS), which put the unemployment rate at 3.9% in December. The difference is the Fed is including those workers who have not looked for a job recently, whereas the NBLS excludes those workers from the labor force which lowers the unemployment rate. The first few months of 2019 has seen continued improvement in household well-being with wages growing in excess of 3% and the number employed has increased.[iv]


International developed equities were flat on the week and emerging equities dropped about 0.85% on the week. May economic activity improved in Europe as Eurozone manufacturing output increased from 48 in April to 49 this month, on the other hand, services activity declined slightly in the month down from 52.8 in April to 52.5 this month.[v] Corporations in Europe reduced their outlook for growth in the rest of 2019 to the lowest level since 2014.


Treasury yields declined yet again last week, continuing the trend that started following President Trump’s May 5 tweet announcing the increase in tariffs on Chinese goods. The 10-year Treasury closed the week at 2.32% while the 3-month closed at 2.35%, so the 3-month to 10-year yield spread has once again inverted.


The economy has slowed. The manufacturing and service sectors as measured by the IHS Markit PMIs have declined to just above 50.0. Growth in business spending and retail sales have turned negative and the tariffs between the U.S. and China may continue to slow the economy further. Despite this negativity, the economy looks to be expanding. At least through April, job growth remains positive and wages are growing at their fastest rate since before the 2008 recession. Based on recent data, U.S. households appear to be in the best condition of the last five years and possibly the best condition since the most recent recession. The increased financial flexibility of households adds to the spending power of consumers lending support to the economy.

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[i] CNN Business (2019), Trump suggests using Huawei as a bargaining chip in US-China trade deal. Retrieved from
[ii] PMI by IHS Markit (2019), IHS Markit Flash U.S. PMI™, Retrieved from
[iii] United States Census Bureau (2019), Monthly Advance Report on Manufacturers’ Shipments, Inventories and Orders April 2019. Retrieved from
[iv] The Federal Reserve (2019), Report on the Economic Well-Being of U.S. Households in 2018. Retrieved from
[v] PMI by IHS Markit (2019), IHS Markit Flash Eurozone PMI®. Retrieved from




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