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MESSAGE FROM THE PRESIDENT TOM L. STRINGFELLOW, CFA®, CFP®, CPA, CIC

President

The following has been compiled from information and comments provided by the investment professionals of Frost Investment Advisors:

Not Your Typical May…

While it may still be too early to discern much from last week’s job growth and stock market headlines, they certainly lent an interesting tone in what has been an otherwise lackluster month for investors. The May rally was boosted by April’s market melt-up, which led most sectors, major domestic indexes and overseas markets into positive territory. The S&P 500 has set four record highs as mega-cap stocks outperformed the overall market by 50 basis points. According to Bespoke research, that also set the backdrop for the average S&P stock posting returns over 3.5 percent year to date. The early spring rally has also benefitted the Nasdaq Index, which closed the week at a record high, helped push the Russell past its prior October high and set the stage for the MSCI All Country World Index to close April with a 3.2 percent April return and year-to-date return of 15.2 percent.

There were a few supporting arguments for the global rally, including the on-again/off-again trade negotiations with China (which, as of Sunday’s night’s tweets, may be off again), last week’s phenomenal jobs report, and or course, the less-bad earnings scorecard. To date over 75 percent of the S&P companies have reported their first quarter earnings for this year and, as has been the case for several quarters, they are delivering better earnings than the earlier analyst estimates. Thus far the blended earnings decline estimates of -2.3 percent from last week (and negative 4.2 percent earlier in the year) are relatively flat (down -0.8 percent) as several market sectors continue to best pundit guesstimates. In terms of sales, FactSet research has also noted an accelerating improvement from earlier estimates, with 5.2 percent revenue growth now the target to beat for the balance of the year.

One bright spot for market- watchers this week was the Labor Department’s jobs report, which reflected a surge in payroll employment. There were 263,000 new jobs added, well above the 185,000 expected, which in turn helped drive the unemployment rate to a five-decade low of 3.6 percent. Gains were broad-based with hiring improving in the service, professional and business services sectors while also seeing gains in construction and local government payrolls. And despite a slight down-tick in hours worked, wage growth posted a slight gain (0.2 percent) to an annualized 3.2 percent. Add an uptick in productivity in April’s jobs report (3.6 percent, the best gain in five years), and the odds of any rumored Fed cut in interest rates this year should be totally dismissed.

In terms of other market impacting actions for the week there were talks of a $2 trillion infrastructure bill which at this point is short of specifics and ultimately resulted in subdued investor reaction. The April ISM Manufacturing PMI report also fell below expectations. Although it’s still in a growth trend, the index had fallen from 55.3 in March to April’s 52.8, matching an October 2016 low. The negative part of the story was a noticeable contraction in the first quarter, which should reverse assuming a successful settlement in the ongoing trade saga.

And while there was some slippage noted in the Dallas and Chicago Fed reports, there were some offsetting positive reports factoring into investor outlook. The weekly releases included the Conference Board’s Consumer Confidence Index, which was ahead of consensus estimates for April due to a positive outlook for the economy, income expectations and the equity markets; a rebound in consumption spending to an annualized growth rate of 4.1 percent through the first quarter; and an improvement in pending home sales for March, matching previous highs from last July. Good news is that sales were positive in all regions outside of the Northeast. We believe all these data points underly the Fed’s current economic assessment and monetary policy patience (no cuts and delayed hikes).

M A R K E T N E W S & V I E W S W E E K O F M A Y 6 , 2 0 1 9

M A R K E T C O M M E N T A R Y

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As for the global outlook given last week’s headlines, the trends are still somewhat mixed. The Eurozone’s GDP for Q1 was ahead of expectations at an annualized 1.5 percent, with the region’s core inflation rate rising to 1.1 percent in April versus March’s 0.8 percent. There were negatives, including a Brexit-related reversal in U.K. manufacturing and PMI readings, and a drop in the BRIC nations (Brazil, Russia, India & China) PMI, with India reflecting the largest decline year-to-date. Regarding the EU outlook specifically, the head of Germany’s Bundesbank viewed the current economic weakness as temporary. We will see how the toss-up between the headwinds and tailwinds fall. The positives still include accommodative monetary policies here and overseas, narrowing corporate spreads, reducing global risks, and a still-viable investment market. Negatives include the ongoing tariffs feud, evolving leadership in the ECB and within a few of the member nations, and Brexit.

THE PAST WEEK IN CHARTS

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MARKET PERFORMANCE

Key Market Indices Last Chg % Chg 1 Week

Chg 1 Week % Chg

1 Mth % Chg

YTD % Chg

12 Mth % Chg

52 Wk High

52 Wk Low

S&P 500 2,945.64 28.12 0.96 5.76 0.20 2.51 17.50 12.01 2,954.13 2,346.58

Bloomberg Barclays US Agg 102.02 0.13 0.14 -0.11 -0.06 0.41 2.90 5.33 102.52 97.85

Bloomberg Barclays Glbl Agg x US 110.38 -0.02 0.15 -0.13 0.22 -0.25 0.85 -2.00 111.02 107.62

MSCI AC World Ex US 369.86 0.73 0.21 -0.11 0.09 1.24 14.27 2.51 380.54 321.86

WHAT WE ARE WATCHING

Key Events: U.S. CPI & wholesale inflation, consumer credit. Internationally, German factory orders and China’s credit data are released.

Geopolitical: China Vice- Premier Liu in Washington for trade talks.

U.S.: Consumer credit, JOLTS job openings, trade. CPI & PPI inflation. Average hourly earnings. Trade balance.

Eurozone: Markit EUZ composite PMI, retail sales. Sentix investor confidence. Germany factory orders, IP, Markit PMIs, trade.

JPN: Nikkei PMI manufacturing survey, auto sales.

CN: Trade balance, foreign reserves, CPI, aggregate financing & new loans.

Central Banks: RBA sets policy.

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Frost Investment Advisors LLC, a wholly owned subsidiary of Frost Bank, one of the oldest and largest Texas-based banking organizations, offers a family of mutual funds to institutional and retail investors. The firm has offered institutional and retail shares since 2008.

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