Macro Overview – April 2019

A change in the Federal Reserve’s stance on the direction of interest rates helped buoy equity and bond prices higher in March, allowing U.S. equity indices to post the strongest first quarter in nearly ten years.

The Federal Reserve scaled back its growth expectations for the U.S. economy and announced that it would hold rates steady with no additional rate increases this year. Economists interpreted the comments as a somber assessment of economic expansion, yet positively received by the equity and fixed income markets. The Fed mentioned trade disputes, slowing growth in China and Europe, and possible spillovers from Britain’s exit from the European Union were factors.

Short-term bond yields rose above longer term bond yields in March creating what is known in the fixed income sector as an inverted yield curve. Normally, short-term yields are lower than longer term yields, resulting in a normal yield curve. A persistent inverted yield curve would become more concerning should it linger for several quarters.

Concerns surrounding economic momentum in Europe became more prevalent as Europe’s central bank, the ECB, signaled that it would maintain interest rates below zero longer than anticipated. Slower growth in both exports and imports have been implying a slowdown throughout the EU, which is comprised of 28 European countries. The pending outcome on how and when Britain finally exits the EU is also adding duress to Britain’s trading and business partners all over Europe.

Chinese government data revealed that exports heading to other countries worldwide fell over 20% in the past year. Data also showed that imports had fallen into China, realizing that Chinese consumers were scaling back demand from prior months.

The most recent jobs report released by the Department of Labor is validating a gradual rise in wages. Concurrently, the unemployment rate fell to 3.8%, pushing wages higher as skilled workers become less available.

Outstanding student loans nationwide now stand at $1.5 trillion, the largest amount of debt ever incurred by students. As the amount of debt has risen, so have delinquencies, surging to over $166 billion, according to calculations by the Federal Reserve Bank of New York.

Congressional leaders this past month are considering legislation that would repeal the current age cap of 70.5 for contributing to IRAs as well as increase the required minimum distribution age for retirement accounts from 70.5 to 72. Such legislation, if passed, would be the most significant changes to retirement plans since 2006.

Falling interest rates since the beginning of the year have spurred an increase in mortgage loan activity which bodes well for both refinancing and housing sales activity.

Sources: Federal Reserve, Dept. of Labor, IRS, Treasury Dept., ECB