Ten Years After

It was ten years ago this weekend that the market bottomed out in the midst of the Great Recession. Since March 9, 2009, when the S&P 500 bottomed out with its lowest close of 676, the index has delivered a ten-year annualized return of 17.8 percent.

 That number may not look familiar, but it is very similar to the returns reached after similar market drops. In the ten years after the October 1987 market crash, the S&P returned 17.2 percent. Just before the bull market of the 1980s, following the bottom reached in August 1982, the S&P returned 17.6 percent.

 In the course of that decade, the single top-performing AS&P stock is Ulta Beauty, which is up more than 7000 percent. Netflix is the second-biggest grower, with gains of more than 600 percent.

February's Jobs Report

Job growth slowed significantly in February, with the economy adding just 20,000 jobs, the Labor Department reported this morning. It was the worst month for job creation since September 2017. That compares with an increase of 311,000 jobs in January; in all of 2018, job growth averaged 223,000 per month.

Nevertheless, the headline unemployment rate fell to 3.8 percent. That's because there was an increase of 198,000 in those considered not in the labor force, while those classified as unemployed fell by 300,000 and the ranks of the employed decreased by 45,000.

Professional and business services saw the highest level of job creation in February, with 42,000 new positions. Health care added 21,000 and wholesale trade rose 11,000. On the downside, construction lost 31,000 and leisure and hospitality, a key component of the recovery, was flat.

What's Going on With Trade

The trade gap grows ever larger: The U.S. trade deficit widened to $59.8 billion for the month of December, reaching its the highest level since October 2008, according to a Census Bureau report that came out yesterday. For the full year, the U.S. trade gap grew to $621 billion.

In 2018, the goods and services deficit increased $68.8 billion, or 12.5 percent, from 2017. When the service sector is excluded, focusing just on goods, the gap was even greater, rising to a record $891.3 billion.

The widening gap is more attributable to imports than exports. Imports rose 2.1 percent in December to $264.89 billion, while exports fell 1.9 percent to $205.12 billion.

The Transports Are Sliding

Here’s a scary factoid for people who like to follow the market’s technical indicators: The Dow Jones Transportation Average yesterday booked its longest stretch of consecutive losses since 2011, according to FactSet data. Dow transports fell for an eighth straight session, matching a decline that ended August 2, 2011.

The closely watched gauge is often used as a proxy for the health of the overall economy. But it's unusual for the transports to fall while the overall Dow is moving sideways.

Transports have declined 3 percent over the past eight sessions, as of yesterday’s close. The Dow industrials, meanwhile, have lost about 0.2 percent since February 21. By comparison, the last time the Dow transports fell for eight straight sessions, the Dow industrials shed nearly 7 percent.

Construction Is Slowing

U.S. construction spending unexpectedly fell in December as investment in both private and public projects dropped, the Commerce Department said yesterday. Construction spending declined 0.6 percent after an 0.8 percent increase in November.

All told, construction spending increased 4.1 percent in 2018, which is the weakest number for that figure since 2011. In December, spending on private construction projects fell 0.6 percent after rising 1.3 percent in November; investment in private residential projects dropped 1.4 percent after rising 3.4 percent in November.

The government reported the economy grew at a 2.6 percent annualized rate in the October-December period, which was strong but down somewhat from the third quarter's 3.4 percent pace. The slowing construction figures may have had something to do with that.

February's Stock Market Scorecard

After a fabulous January, Wall Street’s rally continued in February. The three major stock indexes — the Dow, S&P 500 and Nasdaq Composite — gained 3.7 percent, 3 percent and 3.4 percent, respectively. Year to date, the indexes have gained 11.1 percent. 11.1 percent and 13.5 percent.

That is the fifth biggest gain to start a year in all of the history of the S&P 500. It's also the best start since 1987, when the index gained 17.4 percent in its first two months.

Historically, when January and February have each gained, the year has ended up significantly positive. Since 1938, when both January and February were positive, the S&P ended up on average by more than 20 percent, and was positive 29 of 30 times.

A Strong Fourth Quarter GDP Report

U.S. economic growth was solid at the end of 2018, with GDP rising 2.6 percent, according to a first estimate the Commerce Department released yesterday. For the year, annual 2018 real GDP increased by 2.9 percent.

The biggest driver was non-residential investment, which is primarily business spending, which picked up with a 6.2 percent increase from 2.5 percent in the third quarter. This figure remained strong even as investing in structures declined 4.2 percent. Fixed investment growth of 3.9 percent – up from 1.1 percent in the third quarter – was driven by spending in research and development. R&D spending totaled $425 billion in the fourth-quarter, representing a 9.9 percent year-over-year increase.

Exports rose 1.6 percent in the quarter, reversing a 4.9 percent decline in the previous quarter. Imports increased by 2.7 percent, making trade overall a slight net negative on GDP.