This Weekly Market Update reviews the top three market headlines: Small Businesses Face Tight Labor Market, Economic Momentum Slows, Bond Market Grows Wary.
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Small Businesses Face Tight Labor Market: With the unemployment rate recently hitting a 50-year low, small businesses have struggled to attract new employees, especially when competing against much larger employers. Companies with fewer than 20 workers, which collectively employ approximately 21 million people, experienced average annual job growth of just 1% in both March and April of this year, the lowest level since 2011. In contrast, companies with between 500 and 999 employees grew their workforce at a 3.5% rate over the same period, while those with 1000+ employees saw a 1.8% increase.

Economic Momentum Slows: Data released last week indicated that some elements of the U.S. economy stumbled early in the second quarter. Retail sales fell in April by 0.2% from March, keyed by weakness in electronics, home improvement and autos. Meanwhile, industrial production contracted 0.5% in April, its second consecutive monthly decline, impacted by a large buildup of inventories in Q1 and trade tensions. Similarly, capacity utilization in America’s factories dropped in April to 77.9%, the lowest level in 12 months. The present estimate for Q2 real GDP growth produced by the Federal Reserve Bank of Atlanta’s “GDPNow” model, which is intended to be a running estimate of real GDP growth based on available data for the current measured quarter, is only 1.2%, compared to the 3.2% growth rate reported in Q1.

Bond Market Grows Wary: U.S. Treasury yields resumed their downward slide last week amidst concerns that rekindled trade tensions could dent economic growth. Rates declined across all ranges of the yield curve, with the 10-year Treasury note yield hitting 2.38% mid-week, equal to its 12-month low. During the week, the yield spread between the 10-year note and the 3-month Treasury bill turned negative for the second time this year. Investors concurrently ratcheted up their expectations that the Federal Reserve’s next move will be dovish: by week’s end, the federal funds futures market was assigning 50% odds to the possibility of a Fed rate cut at its September 2019 meeting.    

Data Points: 

  • Companies with less than 20 workers saw average annual job growth of only 1% in March and April
  • Retail sales and industrial production fell by 0.2% and 0.5% in April, respectively
  • The 10-year Treasury note yield hit 2.38% last week, equaling its 12-month low

As of May 17, 2019

Week

Quarter-To-Date

Year-To-Date

One-Year

MSCI All Country World

-0.73%

0.05%

12.23%

0.05%

S&P 500

-0.69%

1.17%

14.98%

7.25%

Russell 2000

-2.32%

-0.12%

14.45%

-4.20%

MSCI EAFE

0.21%

0.25%

10.25%

-6.29%

MSCI Emerging Markets

-3.55%

-5.64%

3.72%

-10.76%

FTSE NAREIT

1.28%

1.50%

18.93%

22.29%

Bloomberg Commodity

1.37%

-1.38%

4.85%

-9.72%

Barclays Aggregate

0.33%

0.61%

3.57%

6.72%

WSJ 5/12/19, 5/15/2019, CME Group, Federal Reserve Bank of Atlanta: Data from Morningstar Direct. Returns for periods greater than one year are annualized. Investment advisory, named and independent fiduciary services are offered through Gallagher Fiduciary Advisors, LLC, an SEC Registered Investment Adviser. Gallagher Fiduciary Advisors, LLC does not express an investment opinion regarding any specific commodity, sector or individual security. Unless otherwise expressly noted, the contents of this communication do not constitute securities or investment advice, nor should this communication be construed as an opinion regarding the appropriateness of any investment. Gallagher Fiduciary Advisors, LLC is a single-member, limited-liability company, with Gallagher Benefit Services, Inc. as its single member. Neither Arthur J. Gallagher & Co., Gallagher Fiduciary Advisors, LLC nor their affiliates provide accounting, legal or tax advice. The information provided cannot take into account all the various factors that may affect your particular situation, therefore you should consult your Gallagher Fiduciary Advisors consultant before acting upon any information or recommendation contained herein to discuss the suitability of the information/recommendation for your specific situation.