TSP

Jiujiang China, Mar 30 2018 - Workers in the electric fan assembly line of Airmate Co. Ltd. prepare to ship products to the US. China reported an unexpectedly large drop in exports for February, coinciding with a weaker than expected US jobs report.

Lyn Alden

The C Fund and S Fund both went down all five days last week.

The S&P 500, which the C Fund tracks, bounced off of a key technical resistance level, and various economic news may have diminished bullish sentiment after such a strong start to 2019.

Chart Source: Google Finance

Economic Surprises

A series of surprisingly negative news hit the markets last week. Some of it was so bad that many economists believe it was unreliable data, that the U.S. partial government shutdown or Chinese lunar new year celebration may have muddled the data.

China’s exports dropped by a whopping 20.7% in February, and their imports fell by 5.2%. Surveyed economists were expecting just a 4.8% export decline and 1.4% import decline. Some exports may have been front-loaded in the prior months due to the possibility of tariffs kicking in, which could result in a sudden drop, but the exact reasons are unclear. China’s large and leveraged economy is being watched around the world because a financial crisis there could ripple through the world economy. The government, however, has many levers to pull to stimulate the economy, and the data that the government reports is often considered suspect in its accuracy.

In the United States, the February job report was unexpectedly bad. Economists surveyed by Dow Jones expected an average of 180,000 new jobs created for the month, but the actual number came in at just 20,000. Some analysts and politicians like Larry Kudlow, director of the National Economic Council, suspect that this may be an anomaly due to one-time events. It’ll take a couple more months of data to see if this is the beginning of a problem or indeed just a blip in the data.

Mario Draghi, the governor of the European Central Bank, announced what was widely perceived as bad news last week. The ECB announced that they expect the Eurozone to have real GDP growth of just 1.1% in 2019 rather than 1.7% as previously forecast. Due to this, Draghi announced a new round of stimulus in the form of targeted bank loans that are designed to entice lending from those large institutions to households and businesses. Additionally, the ECB pushed back its anticipated date for when it may begin raising interest rates.

In response to this dovish news, the euro initially fell 0.6% against the dollar. A weakening Euro can negatively impact returns for investors in the I Fund because earnings and dividends will translate into fewer dollars. So far, however, this is just a small exchange rate change.

Italy recently dipped into what is so far a mild recession, meaning negative quarterly GDP growth:

Italy Quarterly GDP Growth

Chart Source: Trading Economics

Italy is the third largest country in the Eurozone (and fourth largest in Europe), but only the 11th largest component of the I Fund currently. Larger economies like France, Germany, and the UK have all seen recent economic slowdowns as well, however, which presents the continent with widespread concerns about growth over the next couple of years.

Lyn Alden is a financial writer and an engineer, and holds a bachelor’s in engineering and a master’s in engineering management, with a focus on financial modeling and resource management. She specializes in analyzing and presenting financial data. Her investment work can be found on LynAlden.com.