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May 2019
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National Non-Operating Observations
Employment numbers remained strong in April, with 263,000 jobs added to non-farm payrolls and the unemployment rate sinking to 3.6 percent—its lowest level since 1969. The U.S. has added jobs for 103 consecutive months since the end of the Great Recession. Wages are catching up also, after years of lagging behind job growth. April’s 3.2 percent year-over-year hourly earnings growth marked the ninth straight month of wage growth above 3 percent.
The U.S. Gross Domestic Product (GDP) unexpectedly grew 3.2 percent year over year in the first quarter, beating forecasts and allaying concerns over the economic effects of the 35-day partial government shutdown at the beginning of 2019. However, economists warn that the report may be inflated by short-term factors, such as businesses stockpiling goods and materials due to trade concerns, as well as the impact of trade deficit reductions.
Conversely, manufacturing indicators are showing signs of weakness. The Institute for Supply Management’s manufacturing index fell to 52.8 percent from 55.3 percent in March. This represents its weakest growth rate since October 2016, just prior to President Trump’s election. Readings below 50 percent indicate that companies are shrinking instead of expanding, and the current rate is drastically lower than the 14-year high of 61.3 percent in August 2018. Manufacturing overtime also shrank to 4.3 hours per week in April, down from 4.7 hours per week in April 2018.
†1Q 2019 U.S. Bureau of Economic Analysis “Initial” Estimate
*60/40 Asset Allocation assumes 30% S&P 500, 20% MSCI World, 10% MSCI EM, 40% Barclays Agg.

April 2019
Month Over Month Change (bps)
Year Over Year Change (bps)

GDP Growth
Unemployment Rate
Personal Consumption Expenditures
30yr MMD
30yr Treasury
Monthly Return on 60/40 Asset Allocation*
Non-Operating Assets
April saw another month of strong stock market performance, despite investors’ continued movement from equities into fixed income. The Dow Jones Industrial Average is up 14 percent this year, following a difficult end to 2018. This represents its best start to a year since 1999. The S&P 500 has increased 17.51 percent year-to-date, representing its best first four months of a year since 1987, when it gained 19.07 percent. Overall, the blended 60/40 Asset Allocation grew 2.06 percent, bolstered by a 3.37 percent increase in the MSCI World Index and 2 percent gain in the MSCI Emerging Markets index.
Concerns over Brexit’s impact generally have decreased, with an April extension providing an additional six months for negotiations. However, trade talks between the United States and China have deteriorated and are beginning to weigh on the U.S. economy. While overall market conditions are supportive and the U.S. stock market continues to grow, investors are keeping a watchful eye on the effects of the U.S.-China tariff battle.
Long Term
Last Twelve Months
Long Term
Last Twelve Months
Non-Operating Liabilities
More dollars continue to chase less supply in the tax-exempt securities market. Municipal fund flows remain robust, with $5.6 billion entering the market in April. Since the start of 2019, every week has recorded inflows, with more than $32 billion entering the muni market so far this year. By comparison, $26.6 billion has left domestic equity funds since the beginning of the year—making it clear where investors are putting their money.

Muni fund inflows and light supply have supported demand for tax-exempt securities, as evidenced by 30-year MMD’s 47 bps decrease since the start of 2019. 30-year MMD ended April at 2.55 percent. After months of tracking the 30-year Treasury rate in lockstep, tax-exempt rates have diverged and 30-year MMD is 38 bps lower than 30-year Treasury Yield at 2.93 percent. In the short-term markets, 1M LIBOR finished April at 2.48 percent, down only 2 bps since the start of 2019. The tax-exempt short-term rate, SIFMA, ended the month at 2.30 percent, up 80 bps month over month. The drastic rate spike can be explained by companies pulling money out of short-term funds to pay tax bills in April. SIFMA is expected to normalize going forward, as the effect of investors pulling cash from muni money-market funds recedes.
Long Term
Last Twelve Months
Long Term
Last Twelve Months
Note: Taxable and tax-exempt debt capital markets—approximated here by the “30-yr U.S. Treasury” and “30-yr MMD Index”—are dependent upon macroeconomic conditions, including inflation expectations, GDP growth, and investment opportunities elsewhere in the market. A key measure to track is bond fund flows, particularly in the more supply and demand sensitive tax-exempt market. Fund flows are monies moving into bond funds from new investments and principal and interest payments on existing and maturing holdings. Strong fund flows generally signal that investors have more cash, which is a boon to demand. Fund inflows generally are moderate and consistent over time. Fund outflows typically are large and sudden, as external events affect investor sentiment, resulting in quick position liquidation, which can drive yields up considerably in a short amount of time.
National Observations
National Observations
©2019 Kaufman, Hall & Associates, LLC
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