Weekly Market Update - August 19, 2019

Top Three Market Headlines

Yield Curve Signal Flashes Warning: A widely-followed measure of the yield curve’s steepness, the spread between yields on 10-year and 2-year Treasury bonds, briefly turned negative, or inverted, last Wednesday morning, before reverting and finishing the week in positive territory. Investors closely watch this relationship between shorter- and longer-maturity bond yields given that an inverted yield curve has often, though not always, preceded an economic recession. While the signal is closely-watched by investors, there have been two “false positives” over the past 50 years―that is, cases where the yield curve inverted but a recession didn’t subsequently develop. Some observers believe the yield curve’s current shape has been distorted by demand for relatively higher- yielding U.S. Treasury bonds from foreign investors facing negative yields on government bonds in their own countries.

Inflation Inches Up in July: The consumer price index (CPI) rose a seasonally- adjusted 0.3% in July over the prior month, as reported by the Labor Department, an increase from the 0.1% rise in June. The rate of increase over the prior year expanded to 1.8%, an increase from the 1.6% annual rate reported in June. Key factors driving the index higher in July included used cars and health care. Excluding the volatile food and energy sectors, the so-called core rate also rose 0.3% in June for the second straight month—this represented the strongest two- month gain in the core rate in more than a decade. On an annual basis, the core rate rose 2.2%, a modest bump from 2.1% in June.

Falling Rates Drive Mortgage Refinancings: As interest rates have fallen in the U.S., homeowners are rushing to save money by locking in lower rates on home financing. The Mortgage Bankers Association reported last week that mortgage applications in the U.S. rose 21.7% versus the prior week; much of this increase was due to refinancing activity, which surged 36.9% from the prior week. The average rate on 30-year fixed-rate mortgages was 3.60% last week, compared to 4.53% a year ago.

Data Points

• The spread between yields on 10- year and 2-year U.S. Treasury bonds turned negative last week for the first time since 2007.
• The “core” Consumer Price Index rose 0.3% in July for the second straight month.
• Applications to refinance existing mortgages jumped 37% from the prior week.
  
  

Yahoo 8/9/2019, Bloomberg 8/2/2019, MarketWatch 8/13/2019, WSJ 8/13/2019, CNN 8/14/2019, Washington Post 8/15/2019, FactSet 8/14/2019; 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.