(Washington)

The Mueller report was finally released this weekend, and the early indications are that there is nothing in it that proves any wrongdoing on the part of President Trump. Attorney General Barr’s summary to Congress, given yesterday, said there was no collusion between Trump and Russia and nothing in the report amounted to enough for a criminal charge of obstruction of justice. Trump called the report a “complete exoneration”.

FINSUM: So this is far from a “put to bed” issue because Barr’s credibility is under attack. Democrats are pledging to press on. However, one of the things we are very happy about in these divisive times is that the Mueller team had the discipline to take a clear position on the case and did not seek to inflate charges that were not really there in an effort to validate their own work.

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Sell-off. U.S. equity markets tumbled on global growth concerns and weak manufacturing data out of the U.S. and the Eurozone. For the first time since 2007, the 3-month treasury yield eclipsed the 10-year, officially inverting the yield curve which has historically been an indication of an ensuing recession. However, a great piece by Bianco Research points out that previous recessions were preceded by inversion for 10 straight days whereas this is just day one. Furthermore, recession isn't immediate following inversion. All major averages dropped with the S&P 500 (SPY -1.93%), the Dow (DIA -1.78%), and the Nasdaq 100 (QQQ -2.20%) falling nearly 2%.

Macroeconomic data was mostly negative on Friday. U.S. PMI came in weak and dropped to a six-month low, highlighted by manufacturing PMI hitting a 21 month low. To follow this up, indications of an unwanted inventory build is showing as wholesale inventories grew by a much larger margin M/M than expected. The inventories to sales ratio rose to 1.34 which last peaked in early 2016 at 1.38. However it wasn't all bad as February existing-home sales saw its largest M/M gain in over three years, surging 11.8% on lower mortgage rates, higher consumer confidence, more inventory, and rising incomes.

Earnings & Movers: Nike down (NKE -6.61%) after missing revenue estimates yesterday while Tiffany rose (TIF 3.15%) after beating on earnings but missing on sales due to declining Chinese tourism during Q4. For the week, nine S&P 500 companies reported earnings (1.32% of S&P 500 market-cap), eight of which beat earnings estimates, primarily came from the Consumer Discretionary sector (table below).

Large-caps (IVV -1.89%) outperformed small-caps (IJR -3.65%) in the risk-off atmosphere while defensive sectors offered some protection. Utilities (XLU 0.72%) led along with Consumer Staples (XLP -0.13%) while Financials (XLF -2.76%), Energy (XLE -2.71%), and Materials (XLB -2.98%) lagged. We have talked a lot about falling yields and banks this week, but it got got much worse on Friday for Banks (KBE -4.24%) as treasury yields plummeted. The industry finished down nearly 10% on the week.

Developed ex-U.S. (EFA -1.92%) beat out Emerging markets (EEM -2.93%) but it was a sea of red across the globe. German (EWG -2.76%) manufacturing PMI was just plain bad. New orders slumped as the index dropped further into contraction territory which marks the third consecutive month of contraction and the lowest level since 2012. On a positive note (kind of), the EU granted a Brexit extension to May 22 if PM Theresa May can get the U.K. parliament on board with her plan. If not, a hard-Brexit is set for April 12.

Treasury yields fell drastically with the 10-year settling at 2.45%. The Ag (AGG 0.50%) benefited from the drop in yields while long duration (TLT 1.55%) outperformed short (SHY 0.17%). Investment Grade (LQD 0.61%) easily bested High Yield (HYG -0.36%).

Lower crude oil prices (USO -1.69%) weighed on broad commodities (DJP -0.87%) and the Dollar advanced modestly (UUP 0.19%). Gold (GLD 0.23%) benefited from the fall in equities while copper (CPER -2.06%) fell.

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US markets hit five-month highs as major averages climbed steadily up and to the right throughout the day.  A day after the Fed announced a very dovish position, tech shares (Apple) and positive earnings led domestic equities higher.  At the close, the S&P 500 (SPY 1.13%), the Dow (DIA 0.89%), and the Nasdaq 100 (QQQ 1.56%) all gained.

Jobless claims were down W/W (and below consensus estimates) and the Philadelphia manufacturing survey had mixed results.  Current conditions rebounded from last month, buoyed by increases in new orders and shipments.  However, future expectations fell to a three-year low.  Meanwhile, the Conference Board Leading Indicators Index rose for the first time in five months, primarily due to a bounce in equity markets and accommodative financial conditions.

Earnings & Movers: Micron Technology (MU 9.62%) was up big after beating estimates after yesterday's close while Apple surged (AAPL 3.68%) and hit a four month high on several analyst upgrades.  Darden (DRI 6.87%) was up on an earnings beat before the bell and Nike fell after hours on a revenue miss.  It was a bad day for Biogen (BIIB -29.23%) after its Alzheimer's drug was discontinued due to ineffectiveness.

Small-caps (IJR 1.31%) edged out large-caps (IVV 1.12%) but mid-caps (IJH 1.35%) led all sizes (and still do YTD).  With 10 of 11 sectors gaining, tech (XLK 2.51%) provided leadership on the shoulders of Apple while Financials (XLF -0.31%) lagged again, pushed down by banks (KBE -1.03%).

Emerging markets (EEM 0.14%) narrowly outperformed developed ex-U.S. (EFA -0.06%) as global regions were mixed.  Latin America (ILF -1.70%) was dragged lower by clouding uncertainty surrounding Brazil's (EWZ -2.30%) pension reform after former Brazilian President Temer was arrested on corruption charges.  The U.K. (EWU -0.18%) fell along with Developed Europe (IEV -0.27%) as EU officials deliberate over possible extension deadlines for Brexit.

Treasury yields remained largely unchanged with the 10-year settling at 2.54%.  Muted movement in yields had the Ag (AGG 0.02%) mostly flat while Investment Grade (LQD 0.19%) bested High Yield (HYG -0.02%).  While the 10-2 year spread remains at ~13 basis points, the spread between the 10-year and the 3-month T-bill dipped below 10 basis points for the first time since 2007.

The Dollar advanced (UUP 0.63%) as broad commodities declined (DJP -0.35%) along with Energy (DBE -0.67%), Precious Metals (DBP -0.42%), and Industrial Metals (DBB -1.18%).

(New York)

It finally happened. After dangling on the edge of an inversion for months, the US yield curve has just officially crossed into one. The gap between 3-month and 10-year Treasury yields is now negative. 10-year yields have been falling, recently hitting a low of 2.439%. Yield curve inversions are seen as the most reliable indicator of forthcoming recessions. Yields have been falling as a reaction to a highly dovish Fed and weakening economic data.

FINSUM: This is a reason to worry about he economy, but remember that there is often a long lag between an inversion and a peak in the stock market.

(New York)

One of the interesting aspects of the market this year is that the sectors that are doing best are not the ones an investor would naturally expect. For instance, the sector which is blowing away the S&P 500 is utilities. The stocks have been doing so well, they are showing up in momentum oriented funds, which is a rarity. The sector is known for its solidity and stable returns, but right now utilities are hot. Over the last twelve months, utilities have returned 21.2% versus the S&P 500’s 7.3%.

FINSUM: You don’t usually think of utilities getting hot, but because rates are falling at the same time as real estate weakening, utilities are taking a lot of capital that is usually split with REITs.