Monthly Archives: May 2018

Market Insights 5/30/2018

U.S. equities bounced back from yesterday’s European politically-fueled losses to finish solidly higher, as the concerns that drove the uneasiness appeared to calm somewhat.

Treasury yields rallied, snapping back from a recent plunge to lend support to financials, and the U.S. dollar retreated from its recent run.

In economic news, Q1 GDP growth was unexpectedly revised lower and ADP’s employment report missed forecasts, while the afternoon release of the Fed’s Beige Book indicated continued economic expansion.

Crude oil prices recovered from its current downdraft on a bullish OPEC report and gold was higher.

The Markets…

The Dow Jones Industrial Average rose 306 points (1.3%) to 24,668

The S&P 500 Index increased 34 points (1.3%) to 2,724

The Nasdaq Composite moved 66 points (0.9%) higher to 7,462

In moderate volume, 854 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil traded $1.48 higher to $68.21 per barrel and wholesale gasoline was up $0.03 at $2.17 per gallon

The Bloomberg gold spot price was $3.38 higher at $1,302.15 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.7% to 94.16

Q1 GDP revised lower, ADP employment report misses, Fed business activity data on deck

The second look (of three) at Q1 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 2.2%, down slightly from the first release’s 2.3% gain, with the Bloomberg forecast calling for an unrevised figure. Q4 GDP grew by an unrevised 2.9% rate. Personal consumption was revised to a 1.0% rise for Q1, from the preliminary 1.1% gain, and versus the expected adjustment to a 1.2% increase. Q4 personal consumption was unrevised at a 4.0% rise.

On inflation, the GDP Price Index was revised to a 1.9% increase, versus expectations of an unrevised 2.0% gain, while the core PCE Index, which excludes food and energy, was adjusted to a 2.3% gain, from the forecasted unrevised 2.5% increase.

At 2:00 p.m. ET, the Fed delivered its Beige Book report, an anecdotal look at business activity across the nation used as a preparation tool for the Fed’s next two-day monetary policy meeting set to conclude on June 13th. The report indicated that the 12 Federal Reserve Districts in late April to early May reported a moderate pace of expansion in economic activity. As well, the report showed that even though companies continue to report shortages of skilled workers, “wage increases remained modest” for most of the Districts. In addition, while the report noted that manufacturing kicked into higher gear, with most Districts reporting increases in activity and a moderate rise in the prices for goods and services, it also indicated concerns over international trade policy.

The ADP Employment Change Report showed private sector payrolls rose by 178,000 jobs in May, below forecasts of a 190,000 gain, while April’s increase of 204,000 jobs was revised to a 163,000 rise. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader May non-farm payroll report, expected to show headline and private sector jobs grew by 190,000. The unemployment rate is forecasted to remain at 3.9% and average hourly earnings are projected to rise 0.2% month-over-month.

The MBA Mortgage Application Index declined 2.9% last week, following the prior week’s 2.6% decrease. The downturn came as a 4.7% drop in the Refinance Index was met with a 1.9% fall for the Purchase Index. The average 30-year mortgage rate declined 2 basis points to 4.84%.

Treasuries were lower, as the yield on the 2-year note jumped 9 bps to 2.41%, the yield on the 10-year note rose 7 bps to 2.84%, and the 30-year bond rate gained 3 bps to 3.01%.

Treasury yields rebounded from a recent drop that took the 10-year note well below the 3.00% mark, while the U.S. dollar trimmed a rally as of late. Global trade and geopolitical uncertainties remain, while European political turmoil has flared-up to add an extra level of volatility. This May has generally been good for U.S. stocks, although the major indexes still remain within recent ranges. We believe the bull market will continue, but the increased volatility seen earlier this year is likely to reemerge.

Tomorrow’s economic docket will be busy, beginning with personal income and spending for April, forecasted to show income and spending increased 0.3% and 0.4% m/m, respectively, matching the same figures posted in March, followed by weekly initial jobless claims, expected to have decreased by 6,000 to a level of 228,000.

Europe mixed following politically-fueled drop, Asia lower

European equities finished mixed, coming off yesterday’s broad-based drop as political turmoil in Italy and Spain continued to flare-up. Spain’s Prime Minister Rajoy is set to face a no-confidence vote later this week, but Italy has garnered the lion’s share of attention as the attempt to solidify a populist coalition government has hit snags to open up the likelihood of a new election and add to the already heightened political uncertainty.

Italian stock markets rebounded from yesterday’s drop and the nation’s bond yields gave back a recent surge, as a successful bond auction of five-and-ten-year securities appeared to offer some relative relief. The euro and British pound gained ground on the U.S. dollar and bond yields in the major markets mostly rebounded.

In economic news, France’s Q1 GDP growth slightly missed forecasts, German retail sales easily topped expectations in April, and the nation’s consumer price inflation was a bit hotter than expected for this month, while eurozone economic sentiment came in slightly stronger than expected for May.

Stocks in Asia finished lower on the heels of the drops in the U.S. and Europe yesterday, as political concerns in Italy and Spain added to an already skittish global market backdrop. Chinese and U.S. trade uncertainty also lingered to add to the volatility, amid mixed signs of progress regarding relations between the two nations.

Japanese equities declined, with the yen gaining ground for a second day, overshadowing the nation’s stronger-than-expected April retail sales report.

Mainland Chinese securities and those traded in Hong Kong and South Korea fell sharply, while markets in Australia and India also saw losses. For a look at the choppiness in the global markets, check out our article, Late in the Cycle: Market Volatility in Context.

Market Insights 5/29/2018

U.S. stocks tumbled in the first session following the extended holiday break, closing off the lows of the day but still solidly in the red as flared-up political turmoil in Italy and Spain grabbed the geopolitical spotlight.

Treasury yields fell, applying some pressure on financials, though the U.S. dollar continued to rally and consumer confidence moved closer to a 17-year high.

Crude oil prices were lower and gold ticked slightly higher.

The Markets…

The Dow Jones Industrial Average (DJIA) dropped 392 points (1.6%) to 24,361

The S&P 500 Index fell 31 points (1.2%) to 2,690

The Nasdaq Composite declined 37 points (0.5%) to 7,397

In moderately heavy volume, 941 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq

WTI crude oil traded $1.15 lower to $66.73 per barrel and wholesale gasoline was down $0.03 at $2.15 per gallon

The Bloomberg gold spot price was $1.59 higher at $1,300.63 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 94.84

Consumer Confidence hits three-month high, home prices rise and regional manufacturing jumps

The Consumer Confidence Index rose to 128.0 in May, from April’s downwardly-revised 125.6, in line with the Bloomberg estimate. This was the highest level since February’s 17-year high, as the Present Situation Index and the Expectations Index of business conditions for the next six months both improved. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 26.6 from the 22.7 level posted in April.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 6.8% year-over-year gain in home prices in March, versus forecasts of a 6.5% rise. Month-over-month, home prices were up 0.5% on a seasonally adjusted basis for March, below expectations of a 0.8% gain.

Although shortened by the holiday, this week’s economic docket will still be robust, with the first revision (of two) of Q1 GDP, personal income and spending figures, the Fed’s Beige Book report, and the ISM Manufacturing Index. However, the headlining report will likely be Friday’s May non-farm payroll report, with a close eye being on the wage component.

May has generally been good for U.S. stocks, although the major indexes still remain within recent ranges. We believe the bull market will continue, but the increased volatility seen earlier this year is likely to reemerge. U.S. economic data has shown signs of rebounding from its first quarter weakness; and while the expansion is extended in terms of time, it’s less extended in terms of “temperature” (not over-heating). Recent economic signals from international markets are less encouraging, but remain supportive of likely modest international stock market gains.

Treasuries traded solidly higher, with the yields on the 2-year and 10-year notes falling 15 basis points to 2.33% and 2.76%, respectively, and the yield on the 30-year bond dropping 12 bps to 2.97%. For analysis of the interest rate environment, check out our article, Eye on the Indicators: What Does the Yield Curve Tell Us?.

Treasury yields retreated with the 10-year note solidly back below the 3.00% mark, while the U.S. dollar continued to move higher. Global trade uncertainty lingered, as U.S. and China relations remain a question, along with NAFTA negotiations, while geopolitical concerns continued as the highly-anticipated summit with North Korea, expected to happen next month, is in jeopardy due to differences regarding denuclearization.

European political uncertainty flared up to exacerbate sentiment, with Italy grappling with the potential impact of a populist government, and as Spain’s Prime Minister Rajoy faces a no-confidence vote this week. Crude oil prices continued to garner attention amid a recent drop from a surge as of late, pressured by some bearish oil inventory data that has exacerbated supply concerns.

Tomorrow’s U.S. economic calendar will yield the aforementioned second read (of three) of Q1 GDP, with the broadest measure of economic output expected to remain at the preliminary report’s quarter-over-quarter annualized rate of growth of 2.3%, but down from Q4′s final read of 2.9%.

Additionally, the docket will include the ADP Employment Change report, forecasted to indicate an additional 190,000 private sector payrolls were added in May, as well as the latest reads on the trade balance, weekly mortgage applications and preliminary wholesale inventories, while the Fed is expected to release its Beige Book at 2:00 p.m. ET.

Europe and Asia mostly lower as political uneasiness hampers sentiment

European equities traded lower, even as the euro and British pound saw pressure amid the continued rally in the U.S. dollar and as political uncertainty in the region flared up. Bond yields in the region finished mixed, as Italian rates surged and Spanish yields rallied, while most other major market rates lost ground. The markets continue to grapple with Italy’s attempt to implement a populist coalition government and avoid a new election later this year, while Spain’s Prime Minister Rajoy faces a no-confidence vote later this week.

Stocks in Asia finished mostly lower with festering global trade and geopolitical uncertainties being exacerbated by European political concerns flaring-up as Italy grapples with the potential impact of a populist coalition government and Spain’s Prime Minister faces a no-confidence vote this week. The yen moved higher late in the day, pressuring Japanese equities, while South Korean shares also declined. Stocks trading in both mainland China and Hong Kong fell. Indian equities traded lower. However, strength in financials and materials helped Australian securities manage an advance.

Small-Caps are Benefiting from Int’l Tensions, Tax Cuts and Valuations

From the top on January 26 until the end of last week, the S&P 500 is off 5.3%, along with 10 of its 11 sectors, led by consumer staples and telecom services.

Only the tech sector has recorded a positive return. Yet while investors have conspicuously retreated from large-cap stocks over this period, they have somewhat quietly rotated into small-cap issues due to their 2017 underperformance, along with today’s geopolitical tensions and last year’s tax cut.

Seven of 11 S&P SmallCap 600 sectors have posted positive returns since 1/26, and all have outpaced their large-cap brethren. In addition, not only has the S&P SC 600 recovered from its 8.8% decline from 1/26 through 2/8, but on 5/9 it also recorded a new all-time high and is currently outperforming the S&P 500 on a trailing 52-week basis.

Investors now wonder if this absolute advance and relative outperformance will continue? Not only does history say yes, as small-cap stocks traditionally rose more than 8% in price following pullback conclusions, but it also implies that the S&P SC 600 possibly has another 5% to go before slipping into another decline of 5% or more. What’s more, the small-cap index’s relative valuation also supports this conclusion as it trades at a near-9% discount to the S&P 500’s P/E on 2019E full-year EPS estimates.

U.S. Market Weekly Summary – Week Ending 05/25/2018

S&P 500 Posts 0.3% Weekly Gain as Utilities, Real Estate Lead to Upside But Energy, Materials Weigh

The Standard & Poor’s 500 index edged up 0.3% this week as the utilities and real-estate sectors led a number of sectors to the upside but drops in energy and materials limited the size of the gain.

The market benchmark ended the week at 2,721.33, up from last week’s closing level of 2,712.97.

The slim gain this week came despite seven out of 11 sectors being in the black. Through Thursday, trading activity was marked by investors seeking safety in utilities and fearing risk in energy, especially as the US canceled a summit with North Korea. Friday, the energy sector fell further as crude oil futures tumbled on talks being held between Saudi Arabia and Russia about increasing production.

The utilities sector had the largest percentage increase of the week, up 3.1%, followed by a 2% rise in real estate.

On the downside, the energy sector had the largest percentage drop of the week, down 4.5%, followed by a 1.5% decline in materials.

Market Insights 5/25/2018

U.S. stocks finished the final trading session ahead of the three-day holiday break in mixed fashion amid some continued posturing of the geopolitical landscape.

Crude oil prices plunged as reports suggested that Saudi Arabia and Russia are close to a deal that would increase oil production.

Treasuries advanced as yields pulled back from recent jumps. Core durable goods orders topped forecasts and consumer sentiment was unexpectedly revised lower.

The U.S. dollar resumed its recent run and gold finished little changed.

The Markets…

The Dow Jones Industrial Average declined 59 points (0.2%) to 24,753

The S&P 500 Index decreased 6 points (0.2%) to 2,721

The Nasdaq Composite ticked 9 points (0.1%) higher to 7,434

In moderately light volume, 719 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil traded $2.83 lower to $67.88 per barrel and wholesale gasoline was down $0.05 at $2.18 per gallon

The Bloomberg gold spot price was $4.53 lower at $1,300.10 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 94.19

Markets were slightly higher for the week, as the DJIA ticked 0.2% to the upside, the S&P 500 Index added 0.3% and the Nasdaq Composite advanced 1.1%

Core durable goods orders solid, consumer sentiment revised lower

April preliminary durable goods orders fell 1.7% month-over-month, compared to the Bloomberg estimate of a 1.3% decline, though March’s 2.6% increase was revised to a 2.7% rise. Ex-transportation, orders were up 0.9% m/m, above forecasts of a 0.5% rise and compared to March’s upwardly revised 0.4% gain. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, jumped 1.0%, versus projections of a 0.7% increase, but the prior month’s figure was revised negatively to a 0.9% decrease from the initial 0.4% decline.

The final May University of Michigan Consumer Sentiment Index was adjusted lower to 98.0, versus forecasts to be unrevised at the preliminary level and March’s figure of 98.8. The downward revision came as the expectations and current conditions components of the report were both adjusted lower, with the former above and the latter below April’s figures. The 1-year inflation forecast ticked higher m/m to 2.8% from 2.7% and the 5-10 year outlook remained at April’s 2.5% rate.

Treasuries were higher, with the yield on the 2-year note and the 30-year bond declining 3 basis points to 2.48% and 3.09% respectively, and the yield on the 10-year note dropping 5 bps to 2.93%.

Treasury yields continue to pull back, with the 10-year note back below the 3.00% mark, while the U.S. dollar is rebounded after yesterday’s dip from a recent rally. Global trade uncertainty remains, with U.S. and China relations remaining in question, along with NAFTA negotiations, and geopolitical concerns continued to be elevated after the U.S. called off a highly-anticipated summit with North Korea that was expected to happen next month due to differences regarding denuclearization. However, North Korea did respond by saying it is still willing to meet with the U.S. Moreover, crude oil prices pulled-back from a surge as of late, pressured by this week’s bearish oil inventory data and exacerbated by comments by Saudi Arabia that suggested OPEC and its partners could increase supplies later this year.

It appears leading indicators (LI) show little risk of recession and we feel that investors can take comfort, when observing leading economic indicators that there is limited recession risk at present. But we always remind our clients that the economy is not the market and the market is not the economy and we remind that investors should not extrapolate the LEI’s strength into a guarantee of continued stock market strength given the myriad other drivers of stock market behavior.

Please note: All U.S. markets will be closed on Monday in observance of the Memorial Day holiday.

Europe mixed on data and global uncertainties, Asia mostly lower to close out the week

European equities finished mixed with the euro and British pound seeing pressure as the U.S. dollar resumed its recent rally after yesterday’s slip, while global trade and geopolitical uneasiness remained.

The markets continued to focus on yesterday’s announcement that the U.S. will pull out of a highly-anticipated summit with North Korea, as well as North Korea’s response that it is still willing to talk. The auto sector rebounded a bit after falling yesterday on reports that the U.S. is investigating the possibility of tariffs on auto-imports, while the extended pullback in crude oil prices on supply concerns helped cool transportation cost worries but weighed heavily on the energy sector. Travel-related issues rose on some upbeat earnings results in the sector.

U.K. Q1 GDP growth was unrevised at a 1.2% y/y pace, as expected, but down from the 1.4% expansion posted in Q4, while German business confidence came in slightly higher than expected for this month. Bond yields in the region finished mixed as Italian political uncertainty festered and Spanish political worries flared-up.

Stocks in Asia finished mostly lower, with global uncertainties remaining in terms of trade and geopolitical tensions, with auto-related issues remaining hampered by news that the U.S. is looking into potential tariffs on auto imports, while the markets are digesting the U.S. decision to pull out of North Korean talks. Stocks trading in mainland China and in Hong Kong declines, and South Korean shares also traded lower. For a look global trade, check out our article, Global Trade: What It Is and Why It’s Important. Australian securities dipped.

Japanese equities ticked higher, with the yen giving back a recent uptick as the U.S. dollar rebounded from yesterday’s decline and as a May read on consumer price inflation in Tokyo came in cooler than expected. Indian stocks extended yesterday’s solid gain, moving into positive territory for the week as the recovery for the rupee and the recent pullback in crude oil prices eased inflation uneasiness.

Stocks mildly higher amid a host of catalysts

U.S. stocks finished the week slightly higher, with earnings and economic data continuing to paint a solid picture, and bolstered by the minutes from the Fed’s May monetary policy meeting that showed a June rate hike remained in the offing but inflation concerns didn’t appear strong enough to force a more rapid pace of tightening. The U.S. dollar continued to grind higher. Earnings from the retail sector boosted the consumer discretionary sector despite a disappointing reaction to results from Target Corp. Markit’s preliminary May business activity reports showed growth was stronger than expected, while regional manufacturing data continued to suggest output looks to be accelerating this month.

Energy issues fell sharply amid the continued pullback in crude oil prices, while financials slipped as Treasury yields gave back some of a recent run with the 10-year note solidly back below 3.00%. Utilities and real estate stocks led to the upside, while the tech sector posted a solid gain. Stocks were held in check, as choppiness remained amid conflicting developments that kept global trade and geopolitical uncertainties alive.

Although next week will be shortened by the holiday, the economic week will still be robust, courtesy of the Consumer Confidence Index, the first revision (of two) of Q1 GDP, personal income and spending figures, the Fed’s Beige Book report, and the ISM Manufacturing Index. However, the headlining report will likely be Friday’s May nonfarm payroll report, with a close eye being on the wage component.

May has generally been good for U.S. stocks, although the major indexes still remain within recent ranges. We believe the bull market will continue, but the increased volatility seen earlier this year is likely to reemerge. U.S. economic data has shown signs of rebounding from its first quarter weakness; and while the expansion is extended in terms of time, it’s less extended in terms of “temperature” (not over-heating). Recent economic signals from international markets are less encouraging, but remain supportive of likely modest international stock market gains.

Market Insights 5/24/2018

U.S. stocks came well-off the lows of the day to finish the regular trading session mixed. Trade uncertainty was exacerbated a bit following news that the U.S. is considering auto-import tariffs and geopolitical concerns sharpened on the heels of the called-off June 12th summit with North Korea.

Treasury yields, the U.S. dollar and crude oil prices traded lower and gold gained ground.

The Markets…

The Dow Jones Industrial Average (DJIA) declined 75 points (0.3%) to 24,812

The S&P 500 Index decreased 6 points (0.2%) to 2,728

The Nasdaq Composite ticked 2 points lower to 7,424

In moderate volume, 800 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil traded $1.13 lower to $70.71 per barrel and wholesale gasoline was down $0.03 at $2.23 per gallon

The Bloomberg gold spot price rallied $11.24 to $1,304.66 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 93.79

Existing home sales slide more than expected, jobless claims unexpectedly rise

Existing-home sales in April declined 2.5% month-over-month to a 5.46 million annual rate, compared to the Bloomberg forecast of a 5.55 million pace, and versus March’s unrevised 5.60 million rate. Sales of single-family homes declined 3.0% m/m, and were 1.6% below year-ago levels, while purchases of multi-family structures increased 1.6%, and were flat y/y. The median existing-home price was up 5.3% y/y at $257,900, marking the 74th straight month of gains. Unsold inventory came in at a 4.0-months pace at the current sales rate, down from 4.2 months a year ago.

Inventory of homes for sale increased 9.8% m/m but was still 6.3% lower y/y. Sales declined in the Northeast, South and the West, and were flat in the Midwest. Existing home sales account for the majority of the housing sales market.

Lawrence Yun, Chief Economist at the National Association of Realtors that releases the report, said the healthy economy and job market are keeping buyers in the market for now even as they face rising mortgage rates. However, inventory shortages are even worse than in recent years, and home prices keep climbing above what many home shoppers are able to afford.

Weekly initial jobless claims rose 11,000 to 234,000, versus expectations calling for a dip to 220,000, with the prior week’s figure revised higher by 1,000 to 223,000. The four-week moving average increased by 6,250 to 219,750, while continuing claims rose by 29,000 to 1,741,000, south of estimates of 1,746,000.

Treasuries were higher, with the yields on the 2-year and 10-year notes declining 2 basis points (bps) to 2.51% and 2.97%, respectively, and the 30-year bond rate decreasing 3 bps to 3.12%.

The rallies for Treasury yields and the U.S. dollar cooled a bit in the wake of yesterday’s release of the minutes from the Fed’s monetary policy meeting earlier this month. The report suggested a June rate hike is in the offing but policymakers may not be as concerned about the recent increase in inflation expectations enough to accelerate its rate hike campaign

Tomorrow, the U.S. economic calendar will deliver the preliminary durable goods orders report for April, expected to indicate a 1.3% m/m decrease, while ex-transportation orders are estimated to have increased 0.5% m/m, and nondefense capital goods ex-aircraft are anticipated to post a 0.7% m/m gain. Also on tap will be the final University of Michigan Consumer Sentiment Index for May, forecasted to remain at the preliminary reading, which was unchanged from April’s final read of 98.8.

Europe lower and Asia mixed amid trade uncertainties

European equities finished lower, with the euro and British pound moving higher as the U.S. dollar gave back some of a recent run. The greenback slid as late-yesterday’s release of the minutes from the Fed’s May monetary policy meeting appeared to foster a slightly more dovish takeaway to alleviate some concerns about an accelerated Fed rate hike campaign. Auto-related stocks saw pressure after news that the U.S. is investigating the possibility of announcing tariffs on auto imports.

Geopolitical uneasiness also hampered sentiment after U.S. President Donald Trump called off the highly-anticipated summit with North Korea. Energy issues fell as crude prices continued to trim a run as of late, exacerbated by some recent bearish inventory data. However, technology issues ticked higher to lend some support. In economic news, German Q1 GDP was unrevised as expected, continuing to show growth slowed quarter-over-quarter as exports fell, while U.K. retail sales were stronger than expected in April. Bond yields in the region were lower.

Stocks in Asia finished mixed, amid the continued focus on global trade, with the latest news that the U.S. is considering tariffs on auto imports pressuring the sector in the region, while the markets may have received some relief from yesterday’s Fed meeting minutes that appeared to calm rate hike concerns. Japanese equities fell as the yen extended yesterday’s gains, with the U.S. dollar trimming a recent rally in the wake of the Fed’s meeting details, while auto-related issues saw some pressure.

South Korean shares gave up an early gain and finished lower amid the weakness in the auto sector and as the Bank of Korea left its monetary policy stance unchanged. Australian securities ticked higher. Stocks trading in mainland China declined and those trading in Hong Kong advanced. Indian equities gained ground, aided by a recovery in the rupee as the slightly more dovish Fed minutes gave the currency a reprieve from the recent rally in the greenback.

Market Insights 5/23/2018

U.S. equities pared early losses that came amid flared-up global trade and geopolitical uncertainties to finish with modest gains following this afternoon’s release of the minutes from the Fed’s latest monetary policy meeting.

Treasury yields were lower, while the U.S. dollar continued its trek higher in the wake of some mixed economic data.

Meanwhile, crude oil prices were lower on the heels of some bearish oil inventory data and gold was modestly higher.

The Markets…

The Dow Jones Industrial Average rose 52 points (0.2%) to 24,887

The S&P 500 Index increased 9 points (0.3%) to 2,733

The Nasdaq Composite gained 48 points (0.6%) to 7,426

In moderate volume, 811 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil traded $0.36 lower at $71.84 per barrel and wholesale gasoline was down $0.01 at $2.26 per gallon

The Bloomberg gold spot price rose $2.27 to $1,293.41 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.4% at 94.02

Preliminary May business activity tops forecasts, Fed report out

The preliminary Markit U.S. Manufacturing PMI Index showed expansion in output unexpectedly accelerated, ticking higher to 56.6 in May from April’s 56.5 figure, where the Bloomberg estimate called for it to remain. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector also came in stronger than expected this month, rising to 55.7 from April’s 54.6 figure, and versus forecasts calling for a slight rise to 55.0. Readings above 50 for both indexes denote expansion.

New home sales decreased 1.5% month-over-month in April to an annual rate of 662,000 units, versus forecasts calling for 680,000 units and the downwardly-revised 672,000 unit pace in March. The median home price nudged 0.4% higher y/y at $312,400. New home inventory ticked higher to 5.4 months of supply at the current sales pace from 5.3 in March. Sales rose m/m in the Northeast and South, while were flat in the Midwest and dropped in the West. Sales were higher in all regions y/y. New home sales are based on contract signings instead of closings.

In other housing news, the MBA Mortgage Application Index declined 2.6% last week, following the prior week’s 2.7% decrease. The downturn came as a 3.7% drop in the Refinance Index was met with a 2.0% fall for the Purchase Index. The average 30-year mortgage rate jumped 9 basis points to 4.86%.

The Federal Reserve released the minutes from its monetary policy meeting earlier this month, where it kept its policy stance unchanged. The report showed what many market participants are forecasting—a rate hike likely coming in June, saying that most Committee members “judged that if incoming information broadly confirmed their economic outlook, it would likely soon be appropriate for the FOMC to take another step in removing policy accommodation.” The Committee also exhibited little concern about being behind the curve with regards to inflation, with the minutes showing only a few members that thought inflation would move “slightly” above its 2% target, while the majority indicated that a move above 2% “could be helpful in anchoring longer-run inflation expectations at a level consistent with that objective,” saying that the recent increase in prices are likely transitory.

In regards to trade with China, the report showed that there was some concern as it pertains to business confidence, and “it was noted that the potential for higher Chinese tariffs on key agricultural products could, in the longer run, hurt U.S. competitiveness.” The minutes also showed that the Committee discussed the recent flattening of the yield curve, with members split as to its reliability of a signal of future economic activity and if it indicated an increased risk of recession.

We feel of all the concerns weighing on the market, inflation and monetary policy are the ones we view as most important—a more aggressive Fed could quickly change the outlook for both the timing of the next recession and the longevity of the bull market in stocks. Investors can take comfort, when observing leading economic indicators (LEI), that there is limited recession risk at present. But she cautions that one should not extrapolate the LEI’s strength into a guarantee of continued stock market strength given the myriad other drivers of stock market behavior.

Treasuries were higher, as the yield on the 2-year note declined 3 bps to 2.53%, the yield on the 10-year note fell 6 bps to 3.01%, and the 30-year bond rate lost 4 bps to 3.17%.

The markets continue to grapple with the solid economic and earnings foundation, the impact of the recent rally in crude oil prices, along with the mixed geopolitical and trade uncertainties. China and U.S. relations remain a question, and uncertainty is festering regarding NAFTA and the highly-anticipated summit set for June between the U.S. and North Korea, which have hinted might not come to fruition due to differences regarding denuclearization.

Tomorrow’s economic calendar will yield weekly initial jobless claims, forecasted to tick lower by 2,000 to a level of 220,000, as well as existing home sales, with economists expecting a 0.9% m/m decline for April to an annual rate of 5.55 million units. Rounding out the docket will be the Kansas City Fed Manufacturing Activity Index, projected to move lower to a reading of 20 for May from 26 in April, but well above the level of zero that separates expansion from contraction.

Europe and Asia lower on data and heightened global uneasiness

European equities traded lower, following some disappointing economic data in the region, while uncertainties flared-up regarding relations between China and the U.S., as well as toward the highly-anticipated summit between North Korea and the U.S. Markit’s Eurozone Composite PMI Index—a gauge of business activity in the manufacturing and services sectors—showed growth unexpectedly slowed in May, while U.K. inflation figures came in mostly cooler than expected.

The euro and British pound saw pressure, while bond yields in the region finished mixed. Italian political uneasiness also prevailed as the markets continued to grapple with the populist coalition government’s choice for Prime Minister and potential fiscal implications of its policy proposals.

Stocks in Asia finished mostly lower, with U.S. President Donald Trump expressing disappointment regarding bilateral trade talks with China and a highly–anticipated summit between the U.S. and North Korea being questioned to flare-up geopolitical and trade uncertainties and cause skittishness in the markets to resurface.

Japanese equities declined, with the yen showing some strength, while Japan’s PMI Manufacturing Index showed growth slowed in May. Mainland Chinese stocks and those traded in Hong Kong fell sharply, and markets in Australia and India posted losses, while South Korean listings moved higher, aided by strength in technology issues.

Random Thoughts

The S&P 500 appears to be influenced by technical factors these days, even though trade talks are being given the credit or blame for the daily direction.

Research identifies 2,737 on the S&P 500 as the level that is acting as resistance and needs to be surpasses before prices can work their way higher.

However, despite breaking out of its recent continuation pattern, the market is looking for a catalyst that will propel share prices to new highs and thus conclude the correction that started on January 26 and bottomed on February 8.

The advance in small-cap indices to new highs is offering investors encouragement that the S&P 500 won’t be far behind.

Indeed, since getting back to breakeven on May 9 from the sub-10% closing-price low, the S&P SmallCap 600 has set seven new all-time highs, while the S&P 500 still trades more than 5% below its late-January prior high

Market Insights 5/22/2018

U.S. equities finished lower, cooling from the solid gains seen yesterday and despite tempered trade war concerns and some upbeat regional manufacturing data, as geopolitical issues resurfaced surrounding the upcoming U.S.-North Korea summit.

Treasury yields, crude oil prices, gold and the U.S. dollar were all lower.

The Markets…

The Dow Jones Industrial Average fell 179 points (0.7%) to 24,834

The S&P 500 Index declined 9 points (0.3%) to 2,725

The Nasdaq Composite fell 16 points (0.2%) to 7,379

In moderate volume, 820 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil traded $0.15 lower to $72.20 per barrel and wholesale gasoline was up $0.01 at $2.27 per gallon

The Bloomberg gold spot price ticked $0.75 lower to $1,291.85 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.1% at 93.58

Regional manufacturing activity jumps back into expansion territory

The Richmond Fed Manufacturing Activity Index moved back to a level depicting expansion (a reading above zero), jumping to 16 in May from -3 in April, versus the Bloomberg estimate calling for a rise to 10.

Treasuries reversed to the upside, as the yield on the 2-year note fell 2 basis points to 2.55%, the yield on the 10-year note ticked 1 bp lower to 3.06%, and the 30-year bond rate was flat at 3.21%.

Treasury yields paused and the U.S. dollar slipped after both have seen recent rallies. Economic data and earnings growth remain solid, while trade tensions are thawing between the U.S. and China. However, expectations that the Fed may need to accelerate its tightening campaign have ticked higher, with inflation forecasts rising, setting the stage for tomorrow’s release of the minutes from the Fed’s monetary policy meeting earlier this month. The surge in crude oil prices as of late has also caused some skittishness regarding the impact on the all-important U.S. consumer.

Tomorrow’s economic docket will also bring some timely reads on May business activity from Markit, expected to show manufacturing and services sector output both remained comfortably in expansion territory. Noting April’s leading indicators posted another strong showing and continue to suggest little near-term recession risk. We feel that leading indicators—which include the stock market—have done a stellar job “forecasting” subsequent economic growth, but have done a less-than-stellar job forecasting subsequent stock market performance. Tomorrow will also bring a look at housing in the form of new homes sales and MBA Mortgage Applications.

Europe higher, Asia mixed amid trade focus

European equities tilted to the upside, with the euro dipping even as the U.S. dollar slipped from a recent rally. Global sentiment was aided by thawing trade tensions between China and the U.S., after yesterday’s announcements that the two nations would suspend tariffs, while China added today that it will cut tariffs on the auto sector. Auto-related issues saw some strength to help support the markets. Italian stocks shrugged off festering political uncertainty as the markets grapple with the impact of the recently agreed to populist government coalition.

The British pound ticked higher versus the greenback and bond yields in the region finished mixed.

Stocks in Asia finished mixed following the solid gains in the U.S. yesterday as China and the U.S. announced that they will suspend tariffs, which helped cool trade war concerns.

Mainland Chinese equities finished flat, as property-related stock weakness offset some of the improved trade sentiment. However, stocks in Japan declined, modestly paring a recent rally with the yen trimming a recent fall as the U.S. dollar cooled from a run as of late. Australian securities fell amid some weakness in banking and mining stocks, and listings in India ticked higher.

Market Insights 5/21/2018

The U.S. equity markets saw solid gains in today’s session, rebounding from last week’s dip, with technology and industrial issues leading the way, as trade concerns were tempered after China and the U.S. decided to suspend tariffs after a second round of trade talks.

Treasury yields were modestly higher amid a dormant economic calendar and crude oil prices gained ground, while gold dipped and the U.S. dollar was flat.

The Markets…

The Dow Jones Industrial Average (DJIA) jumped 298 points (1.2%) to 25,013

The S&P 500 Index gained 20 points (0.7%) to 2,733

The Nasdaq Composite rose 40 points (0.5%) to 7,394

In moderate volume, 711 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil traded $0.98 higher to $72.35 per barrel and wholesale gasoline was up $0.03 at $2.26 per gallon

The Bloomberg gold spot price ticked $0.40 lower to $1,292.64 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was unchanged at 93.64

Treasury yields and U.S. dollar remain elevated ahead of economic week

This week, the economic calendar will bring some key reads on the housing sector in the form of existing and new home sales, as well as data for this month, courtesy of reports on consumer sentiment from the University of Michigan and business activity from Markit. However, the Fed will likely garner the lion’s share of attention, as the minutes from its May monetary policy meeting will be released and Fed Chairman Jerome Powell is set to speak on Friday morning.

Treasuries were mostly lower amid an economic calendar void of any major releases today, as the yield on the 2-year note rose 2 basis points (bp) to 2.56%, the yield on the 10-year note ticked 1 bp higher to 3.06%, while the 30-year bond rate was flat at 3.20%.

The yield on the 10-year note sits at levels not seen since 2011 and the U.S. dollar took a slight respite from its recent move to the upside, amid resurfaced Fed rate hike expectations as the economic and earnings fronts remain solid.

Meanwhile, crude oil prices added to a surge as of late, geopolitical concerns continue to fester, and global trade came back into focus as the U.S. and China came off another round of trade talks, with the countries agreeing to suspend tariffs.

Europe and Asia mixed as global trade uncertainty remains in focus

European equities finished mixed, with the euro and British pound losing ground as the U.S. dollar continued to move higher, though volume was lighter than usual, as German and Swiss markets were closed for holidays. Bond yields in the region traded mixed.

The markets appeared to view a suspension of tariffs between the U.S. and China as progress, but Italian political uncertainty festered after the recent agreement between the League and Five Star Movement to form a populist coalition government. The two parties are set to meet with President Mattarella today to discuss their fiscal plan, which concerns about has caused some market uneasiness, and who may be Prime Minister.

Stocks in Asia finished mixed on the heels of the weekly dip in the U.S. as focus remains on the tightening financial conditions, while sentiment appeared to receive some support as the U.S. and China agreed to suspend tariffs amid ongoing trade negotiations.

Japanese equities gained ground, with the yen remaining hamstrung amid the continued grind higher for the U.S. dollar, while the nation reported a larger-than-expected trade surplus as export growth outpaced imports last month. Stocks traded in mainland China and Hong Kong advanced, as did securities in South Korea, while markets in Australia and India fell.