Weekly Economic Update

Economic Update 6-11-2018

  • Economic data for the week consisted of better-than-expected non-manufacturing index data and continued strength in job openings and jobless claims, while the trade deficit shrank a bit.
  • Equity markets continued their winning run with U.S. stocks outgaining foreign stocks, and emerging markets ending higher but to a lesser degree.  Bonds lost some ground as interest rates ticked up.  Commodities were mixed due to offsetting forces, although there was little change in the price of crude oil.

U.S. stocks experienced a sharply positive week, with both large and small caps rising in unison and investors not appearing focused on a specific issue—with attention scattered between decent economic data, the upcoming G7 weekend meeting and tariff headlines, and geopolitical concerns dissipating somewhat.  The latter featured the U.S.-North Korean meeting being back on for Singapore, a political coalition being formed in Italy, as well as an easing of some political tensions in Spain.  From a sector perspective, consumer cyclicals and materials ended the week with the strongest gains, near or over +3%, while utilities lagged with similar returns on the negative side, down -3%, along with higher bond yields.

Foreign stocks gained, albeit to a lesser degree than domestic, despite the positive influence of a weaker dollar.  The dollar was especially weak against the euro, which strengthened for a variety of reasons, including potential pareback on QE, which could cause yields to rise, as well as the irony that a euro without Italy included would actually be a stronger union from a financial and debt perspective.  Both Europe and Japan fared better than the U.K.  Emerging markets were up a bit on the week, as strength in China was offset by weakness in Russia and Brazil, the latter due to a lengthy truckers’ strike.

U.S. bonds lost ground as rates ticked higher.  While investment-grade credit underperformed governments domestically a bit, high yield bonds outperformed in keeping with a strong week in equities.  Foreign bonds also lagged, but the impact was lessened by the positive influence of a weaker dollar, which tends to have a magnified effect on fixed income, due to the generally smaller returns.  In recent weeks, yields appear to have been depressed somewhat by uncertainty over Italy, which has outweighed potential rises as one might assume based on decent economic data.

Real estate gained during the week, in keeping with broader equities, with both U.S. and foreign REITs faring well.  Interestingly, retail and regional malls fared best, with strong recovery gains, paring back year-to-date losses, while 2018-leading lodging/resorts fell back.

Commodities experienced minor losses on net, with strong gains in industrial metals (notably copper due to higher global growth and fears of decreased production) coupled with weakness in agriculture—soybeans and corn—on decent weather and strong supplies.  Energy lost a bit of ground on net due to losses in natural gas, although crude oil prices were little changed for the week, ending at $65.74/barrel.

 

Period ending 6/8/2018 1 Week (%) YTD (%)
DJIA 2.79 3.50
S&P 500 1.66 4.85
Russell 2000 1.51 9.47
MSCI-EAFE 0.96 -0.29
MSCI-EM 0.46 -1.99
BlmbgBarcl U.S. Aggregate -0.22 -2.07

 

U.S. Treasury Yields 3 Mo. 2 Yr. 5 Yr. 10 Yr. 30 Yr.
12/31/2017 1.39 1.89 2.20 2.40 2.74
6/1/2018 1.92 2.47 2.74 2.89 3.04
6/8/2018 1.93 2.50 2.77 2.93 3.08

 

 

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                        

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. 

 

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