The Daily FINSUMMARY- sponsored by ETF Action
Sell-off. U.S. equity markets tumbled on global growth concerns and weak manufacturing data out of the U.S. and the Eurozone. For the first time since 2007, the 3-month treasury yield eclipsed the 10-year, officially inverting the yield curve which has historically been an indication of an ensuing recession. However, a great piece by Bianco Research points out that previous recessions were preceded by inversion for 10 straight days whereas this is just day one. Furthermore, recession isn't immediate following inversion. All major averages dropped with the S&P 500 (SPY -1.93%), the Dow (DIA -1.78%), and the Nasdaq 100 (QQQ -2.20%) falling nearly 2%.
Macroeconomic data was mostly negative on Friday. U.S. PMI came in weak and dropped to a six-month low, highlighted by manufacturing PMI hitting a 21 month low. To follow this up, indications of an unwanted inventory build is showing as wholesale inventories grew by a much larger margin M/M than expected. The inventories to sales ratio rose to 1.34 which last peaked in early 2016 at 1.38. However it wasn't all bad as February existing-home sales saw its largest M/M gain in over three years, surging 11.8% on lower mortgage rates, higher consumer confidence, more inventory, and rising incomes.
Earnings & Movers: Nike down (NKE -6.61%) after missing revenue estimates yesterday while Tiffany rose (TIF 3.15%) after beating on earnings but missing on sales due to declining Chinese tourism during Q4. For the week, nine S&P 500 companies reported earnings (1.32% of S&P 500 market-cap), eight of which beat earnings estimates, primarily came from the Consumer Discretionary sector (table below).
Large-caps (IVV -1.89%) outperformed small-caps (IJR -3.65%) in the risk-off atmosphere while defensive sectors offered some protection. Utilities (XLU 0.72%) led along with Consumer Staples (XLP -0.13%) while Financials (XLF -2.76%), Energy (XLE -2.71%), and Materials (XLB -2.98%) lagged. We have talked a lot about falling yields and banks this week, but it got got much worse on Friday for Banks (KBE -4.24%) as treasury yields plummeted. The industry finished down nearly 10% on the week.
Developed ex-U.S. (EFA -1.92%) beat out Emerging markets (EEM -2.93%) but it was a sea of red across the globe. German (EWG -2.76%) manufacturing PMI was just plain bad. New orders slumped as the index dropped further into contraction territory which marks the third consecutive month of contraction and the lowest level since 2012. On a positive note (kind of), the EU granted a Brexit extension to May 22 if PM Theresa May can get the U.K. parliament on board with her plan. If not, a hard-Brexit is set for April 12.
Treasury yields fell drastically with the 10-year settling at 2.45%. The Ag (AGG 0.50%) benefited from the drop in yields while long duration (TLT 1.55%) outperformed short (SHY 0.17%). Investment Grade (LQD 0.61%) easily bested High Yield (HYG -0.36%).
Lower crude oil prices (USO -1.69%) weighed on broad commodities (DJP -0.87%) and the Dollar advanced modestly (UUP 0.19%). Gold (GLD 0.23%) benefited from the fall in equities while copper (CPER -2.06%) fell.
