The major domestic equity indexes closed out Monday’s trading well into positive territory. As a result, the second quarter begins on a strong note, as upbeat manufacturing numbers from China and the United States eased worries about slowing global growth.
The benchmark S&P 500 index, which is only 2.2 percent below its record closing high in September, triggered a “golden cross” pattern, in which its 50-day moving average crosses above its 200-day moving average. This is a technical signal that theoretically portends additional gains going forward.
Gains in global equities were spurred by data showing that China’s manufacturing sector unexpectedly returned to growth in March for the first time in four months. Meanwhile, manufacturing numbers for March were also better than expected, helping to counteract soft retail sales data for February.
Concerns about a global economic slowdown have dimmed sentiment since the Federal Reserve announced in late January that its monetary tightening would end earlier than expected, as it cited “cross currents” affecting the economy.
The shift in Fed policy drove yields on 10-year Treasury notes below those of three-month bills last week for the first time in more than a decade. However, yields on 10-year notes are now back above three-month bill rates and on Monday hit a one-week high.
Monday’s rise in the 10-year Treasury yield helped lift financial shares, which provided the largest boost to the S&P 500 among the index’s 11 sectors. S&P 500 bank shares rose 2.9 percent.
Concerns over slowing momentum have not entirely dissipated. With the first-quarter corporate earnings reporting season about two weeks away, investors are bracing for what may be the first corporate profit decline since 2016. The consensus is for quarterly earnings to fall 2 percent, according to Refinitiv data.
Still, on Monday, most S&P sectors rose. Only consumer staples, real estate and utilities shares, which tend to decline as 10-year Treasury yields rise, were in the red. Automobile manufacturers’ shares rose after China’s State Council said on Sunday that the country would continue to suspend additional tariffs on the import of U.S. vehicles and auto parts after April 1.
General Motors added 1.8 percent and Ford gained 2.3 percent.
Chipmakers, which draw much of their revenue from China, also rose. The Philadelphia Semiconductor index advanced 2.5 percent.
Shares of Wynn Resorts rose 8.4 percent, the most among S&P 500 companies, as March gambling revenue from the Chinese territory of Macau rose from the previous month.
Lyft fell 11.9 percent to end below their IPO price after brokerage Guggenheim Securities started coverage of the ride-hailing company’s shares with a “neutral” rating. Lyft debuted on the Nasdaq on Friday.
Approximately 7.11 billion shares changed hands on the major domestic equity exchanges, as compared to the 7.47 billion share average over the past 20 trading days.
Day’s Economic Data
Retail sales unexpectedly fell in February, but a rebound in factory activity in March and strong increase in construction spending offered hope the economy was not slowing as sharply as previously feared.
The mixed reports on Monday prompted an increase in growth projections for the first quarter. Nonetheless, the improved prospects are unlikely to impact on the Federal Reserve’s decision to end its three-year campaign of tighter monetary policy.
The Fed abandoned projections for any interest rate hikes this year after increasing borrowing costs four times in 2018, acknowledging rising headwinds, including a fading stimulus from $1.5 trillion in tax cuts, trade wars, slowing global growth and uncertainty over Britain’s exit from the European Union.
Retail sales fell 0.2 percent as households cut back on purchases of furniture, clothing, food and electronics and appliances, as well as building materials and gardening equipment. However, January’s sales increase was revised up to 0.7 percent from the previously reported 0.2 percent. Retail sales in February advanced 2.2 percent from a year ago.
The surprise decline in sales during February could partly reflect delays in processing tax refunds in the middle of the month. Tax refunds have also been smaller on average compared to prior years following the revamping of the tax code in January 2018. Bad weather could also have hurt sales.
Excluding automobiles, gasoline, building materials and food services, retail sales fell 0.2 percent in February after an upwardly revised 1.7 percent surge in January. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
They were previously reported to have rebounded 1.1 percent in January. Consumer spending accounts for more than two-thirds of economic activity. While the upward revision to core retail sales did not reverse December’s 2.2 percent plunge, it put consumer spending for the first-quarter on a slightly higher growth trajectory than before.
There was a further increase in first-quarter GDP prospects, with a second report from the Commerce Department indicating construction spending rose 1.0 percent to a nine-month high in February after rising 2.5 percent in January.
A third report from the Commerce Department indicated business inventories increased 0.8 percent in January, matching December’s gain. Though the strong inventory build suggests demand is slowing it lifted GDP forecasts for the first quarter.
Goldman Sachs raised its first-quarter GDP estimate by four-tenths of a percentage point to a 1.2 percent annualized rate. The economy grew at a 2.2 percent rate in the October-December quarter.
While demand is softening, the supply side of the economy is stabilizing. In a fourth report on Monday, the Institute for Supply Management said its index of national factory activity rose to a reading of 55.3 in March from 54.2 in February, which had marked the lowest level since November 2016.
A reading above 50 indicates expansion in the manufacturing sector, which accounts for about 12 percent of the economy.
The ISM said 16 industries, including machinery, computer and electronic products, furniture, and electrical equipment, appliances and components, reported growth last month. Apparel and paper products industries reported a contraction.
The ISM’s new orders sub-index increased to a reading of 57.4 last month from 55.5 in February. Yet, a measure of export orders fell, likely reflecting softening global economic growth.
Factories reported hiring more workers last month, with a measure of manufacturing employment racing to a reading of 57.5 from 52.3 in February. That augurs well for a rebound in job growth in March after hiring almost stalled in February. March’s employment report is scheduled for release on Friday.