Investment Commentary – April 10, 2019

Year to Date Market Indices as of Market Close April 9, 2019

Dow 26,150 (12.10%)
S&P 2,878 (14.81%)
NASDAQ 7,909 (19.20%)
Gold $1,306 (0.70%)
OIL $64.28 (5.99%)
Barclay Bond Aggregate (4.28%)

Stock market set to drift higher as investors digest inflation data, await Fed minutes

U.S. stock-index futures pointed to modest opening gains on Wednesday as investors took in a trio of developments, including an important reading of inflation, and updates from European and U.S. central banks.

How are benchmarks faring?

Futures for the Dow Jones Industrial Average YMM9, +0.06% rose 26 points, or 0.1%, at 26,184, those for the S&P 500 index ESM9, +0.10% gained 5.65 points to 2,888, a gain of about 0.2%, Nasdaq-100 futures NQM9, +0.06% meanwhile, climbed 10.75 points, or 0.1%, at 7,604.

On Tuesday, the Dow DJIA, -0.72% dropped 190.44 points, or 0.7%, to close at 26,150.58, while the S&P 500 index SPX, -0.61% fell 17.57 points. or 0.6%, to 2,878.20. The Nasdaq Composite Index COMP, -0.56% declined 44.61 points, or 0.6%, to 7,909.28.

What’s driving the market?

Investors are digesting the latest inflation data Wednesday morning, after the Labor Department issued its reading of the consumer-price index, which showed prices rising at the fastest pace in 14 months, though price gains were more muted when excluding volatile food and energy prices.

Markets will get a deeper look at the Federal Reserve’s monitoring of inflation and growth, when the minutes of its March meeting are released at 2 p.m.

Oil and gas ‘could lose 95% of its value’ by 2050, consultancy warns

Companies in the oil and gas sector, including large groups such as Shell, BP and Exxon, could lose 95% of their value by 2050 if governments take action to limit global warming to 2 degrees Celsius, according to new analysis.

The report, from the investment consultancy Mercer, is one of the first comprehensive attempts to model sector-by-sector effects of climate change, and potential regulatory action to combat it, on investors’ portfolios.

It concludes that efforts to keep global warming to 2°C will have a cost impact for equity returns in the coming decades. Overall, efforts to mitigate climate change will cost stock investors in developed markets around 0.2% a year in the next three decades, adding up to foregone returns of 5.6% by 2050.

But because stocks are not the only thing investors put money into — Mercer also looked at the consequences for property, bonds and infrastructure — overall, efforts to curb climate change are expected to benefit investors by between 0.1% and 0.3% a year. Allowing it to run unchecked would hurt returns overall.

But within those averages, the costs and benefits vary wildly. Mercer estimated that in the scenario where governments take “aggressive” action, by 2050 the global demand for oil will have dropped by a third, while the supply of less-polluting natural gas rises 20%. Coal power will be aggressively phased out and electric cars will make up half of new vehicle sales.

In that world, oil and gas stocks will lose 42% of their market value by 2030, and 95% by 2050. On the plus side, investments in renewable energy, such as wind and solar, would soar by 178%.

On Tuesday, the S&P 500 snapped an eight-session win streak, amid fears over escalation of trade tensions with the European Union and a weaker global outlook from the International Monetary Fund.

President Donald Trump’s administration threatened to impose $11 billion worth of fresh tariffs on imports from the European Union, raising the specter of increased global trade tensions beyond the continuing U.S.-China spat.

Around the Web:

Steady progress: Stocks climbed throughout the week, rising more than 2% overall, and the S&P 500 on Friday notched its seventh daily gain in a row, extending a rally that began in the previous week.

Trade optimism: While sticking points remain in the U.S.-China trade dispute, U.S. President Donald Trump on Thursday offered an upbeat assessment of prospects for a comprehensive agreement. The president said the two countries hope to reach a deal within the next four weeks, although no date has been set for a potential summit between Trump and China’s Xi Jinping.

Approaching records: The rally that started in late December has returned stocks close to the record heights reached more than six months ago. As of Friday, the S&P 500 and Dow were both around 1.5% shy of their records, while the NASDAQ was about 2.1% below its peak.

Yield curve un-inverts: The curve that measures differences in yields between short- and long-dated U.S. Treasury debt returned to a mostly flat profile late in the week, as the 10-year bond’s yield climbed back to a level slightly above the 3-month bill’s yield. The change marked a reversal from a couple of weeks earlier, when the 10-year yield slipped below that of the 3-month note for the first time in more than a decade.

Upcoming events:
Wednesday: Release of minutes from March 19–20 meeting of the U.S. Federal Reserve Board

Other Notable Indices (YTD)
Russell 2000 (small caps) 4.39
EAFE International 12.20
EAFE Emerging Markets 13.22

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.