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Earnings Season Brings New Optimism for the Markets

CONSUMER SENTIMENT INDEX DESCENDS SLIGHTLY

In its initial April edition, the University of Michigan’s survey of household sentiment saw its index decline to 97.8 from its final March reading of 101.4. The survey’s chief economist, Richard Curtin, believed that “uncertainty surrounding the evolving [U.S.] trade policy” affected the reading, but he added that “confidence still remains relatively high.”1

A SURPRISE RETREAT FOR THE HEADLINE CPI

Economists polled by Briefing.com assumed the Consumer Price Index would rise 0.1% in March. Instead, it fell by that amount, largely due to a dip in gasoline costs. Core consumer inflation increased 0.2% and matched their expectations. Looking at the big picture, the Department of Labor said that consumer prices were up 2.4% year-over-year through March.2,3

OIL SOARS AS POSSIBILITY OF SYRIA STRIKE LOOMS

Light sweet crude rose 8.6% in five days on the NYMEX, breaking a 2-week losing streak and settling at $67.39 Friday. That was oil’s best close since December 2014.4

StOCKS CLIMB AS EARNINGS SEASON BEGINS

Less anxiety about tariffs and renewed optimism about tech and financial shares led

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Tariff Talks Continue to Drive Stock Market Volatility

THE MONTH IN BRIEF
In March, stocks faced another significant challenge. The Trump administration’s sudden plan to institute tariffs on imports sent a shudder through the bulls. All three major Wall Street benchmarks fell more than 2.5% during the month as investors around the world considered the prospect of trade wars involving American, Chinese, and European products. The Federal Reserve raised the target range for the federal funds rate by another quarter point; mortgage rates were little changed for the month, and existing home sales improved. In Europe, leaders agreed on how the Brexit would unfold. The value of bitcoin declined, while gasoline and oil futures rallied. All in all, it was an eventful and volatile month for the economy and the markets.1

DOMESTIC ECONOMIC HEALTH  
As March began, President Trump announced that the U.S. would soon impose tariffs of 25% on imported steel and 10% on imported aluminum. Those excise taxes were authorized before the month ended; some nations (including Canada and Mexico) received short-term exemptions from them. Another set of tariffs, about $60 billion annually, were envisioned for various Chinese imports. This last action prompted a direct reaction in China (see “Global Economic Health” below).2,3

The nation’s central bank lifted the benchmark interest rate slightly. Making its sixth, quarter-point hike in less than a year and a half, the Federal Reserve increased the target range on the federal funds rate to 1.50-1.75%. The dot-plot representing the consensus forecast of Fed policymakers still showed a total of three rate hikes for 2018. (Three hikes are also projected for 2019.)4

While investors fretted over possible economic backlash from tariffs, fundamental economic indicators largely delivered good news. Non-farm payrolls swelled with 313,000 net new hires in February, according to the Department of Labor; the headline unemployment and U-6 unemployment rates were respectively unchanged at 4.1% and 8.2%.5

Manufacturing output improved 1.2% in February, while industrial output was up 1.1% (and 4.4% year-over-year). The Institute for Supply Management’s manufacturing purchasing manager index climbed to 60.8 in February, rising 1.7 points. ISM’s service sector PMI declined 0.4 points in February to a still-impressive 59.5.5,6

Household spending increased by 0.2% in February according to the Department of Commerce, with household incomes up 0.4%. The two most-respected consumer confidence indices were still at lofty heights. The University of Michigan’s gauge went from 99.7 at the end of February to a preliminary March mark of 102.0, then a final March reading of 101.4; the Conference Board’s barometer declined to 127.7 from 130.0.5

As for inflation pressure, it moderated slightly: the annualized rise of the Consumer Price Index ticked up to 2.2% in February, with the annualized core CPI gain remaining at 1.8%. Producer prices, though, were up 2.8% year-over-year through February.5

GLOBAL ECONOMIC HEALTH
China followed America’s declaration of tariffs on Chinese imports

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Dow Rises 669 Points Today After Falling 5.6% Last Week on Trade War Worries

TRADE WAR POSSIBILITY WEIGHS ON STOCKS

Last week, the U.S. imposed excise taxes on steel and aluminum imported from select countries and announced that up to $60 billion of Chinese imports would also soon face tariffs. These protectionist moves weakened bullish sentiment on Wall Street. The S&P 500 fell steadily Thursday and Friday and had its worst week since 2016, slipping 5.95% to 2,588.26; the Dow Industrials sank 5.67% on the week to 23,533.20. The Nasdaq Composite settled at 6,992.67, down 6.54% for the week.1,2

FED MAKES ITS FIRST INTEREST RATE MOVE OF 2018

After Federal Reserve officials voted to increase the target range on the federal funds rate by 0.25% to the 1.50-1.75% level Thursday, their dot-plot forecast showed no change in the pace of tightening planned for this year. Three hikes are projected for 2019 and two more in 2020. In succession, the increases envisioned for 2018-20 could leave rates near 3.4% by the final quarter of 2020.3

EXISTING HOME SALES INCREASE

New National Association of Realtors data shows that the sales

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How Retirement Spending Changes With Time

Once away from work, your cost of living may rise before it falls.

New retirees sometimes worry that they are spending too much, too soon. Should they scale back? Are they at risk of outliving their money?

This concern is legitimate. Many households “live it up” and spend more than they anticipate as retirement starts to unfold. In ten or twenty years, though, they may not spend nearly as much.1

The initial stage of retirement can be expensive. Looking at mere data, it may not seem that way. The most recent Bureau of Labor Statistics figures show average spending of $60,076 per year for households headed by Americans age 55-64 and mean spending of just $45,221 for households headed by people age 65 and older.1,2

Affluent retirees, however, are often “above average” in regard to retirement savings and retirement ambitions. Sixty-five is now late-middle age, and today’s well-to-do 65-year-olds are ready, willing, and able to travel and have adventures. Since they no longer work full time, they may no longer contribute to workplace retirement plans. Their commuting costs are gone, and perhaps they are in a lower tax bracket as well. They may be tempted to direct some of the money they would otherwise spend into leisure and hobby pursuits. It may shock them to find that they have withdrawn 6-7% of their savings in the first year of retirement rather than 3-4%.

When retirees are well into their seventies, spending decreases. In fact, Government Accountability Office data shows that people age 75-79 spend 41% less on average than people in their peak spending years (which usually occur in the late 40s). Sudden medical expenses aside, household spending usually levels out because the cost of living does not significantly increase from year to year. Late-middle age has ended and retirees are often a bit less physically active than they once were. It becomes easier to meet the goal of living on 4% of savings a year (or less), plus Social Security.2

Later in life, spending may decline further. Once many retirees are into their eighties,

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Strong Jobs Report Drives Stocks Higher

FEBRUARY SAW A HIRING SURGE

Payroll growth was truly impressive last month. According to the latest Department of Labor report, employers added 313,000 net new jobs, including 61,000 in the construction industry; economists polled by Reuters projected a total February gain of 200,000. With the labor force participation rate reaching a 6-month high, the headline jobless rate stayed at 4.1% and the broader U-6 rate at 8.2%. Yearly wage growth declined to 2.6%.1

SERVICE BUSINESSES ARE THRIVING

The Institute for Supply Management’s February snapshot of service industry growth was quite positive. ISM’s non-manufacturing purchasing manager index did wane slightly, losing 0.4 points to 59.5, but the reading shows a very healthy service sector. January’s 59.9 mark was the best seen since August 2005.2

WTI CRUDE TOPS $62

As Wall Street’s closing bell sounded Friday, oil settled at $62.04. A 3% Friday gain left the commodity up for the week, even after the Energy Information Agency said that daily U.S. output had increased to nearly 10.4 million barrels, a record.3

FRIDAY RALLY ENDS BULLISH WEEK

A strong jobs report surpassed forecasts, and the dip in annualized wage growth hinted

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