U.S. stocks strung a second-straight session of gains to close out the final trading day of the first-half of the year with the recently pressured technology and healthcare sectors rebounding.
Treasury yields ticked higher and the U.S. dollar fell amid rallies for the euro and British pound.
The Dow Jones Industrial Average (DJIA) gained 55 points (0.2%) to 24,271
The S&P 500 Index added 2 points (0.1%) to 2,718
The Nasdaq Composite advanced 7 points (0.1%) to 7,510
In moderately-heavy volume, 982 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq
WTI crude oil advanced $0.70 to $74.15 per barrel and wholesale gasoline was up $0.05 at $2.17 per gallon
The Bloomberg gold spot price traded $4.28 higher to $1,252.53 per ounce
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.8% lower at 94.60
Markets were lower for the week, as the DJIA declined 1.3%, the S&P 500 Index was also 1.3% lower and the Nasdaq Composite fell 2.4%
Personal income and spending report mixed, consumer sentiment dips more than expected
Personal income rose 0.4% month-over-month in May, matching the Bloomberg forecast, and versus April’s downwardly revised 0.2% increase. Personal spending grew 0.2%, below expectations of a 0.4% gain, and versus April’s downwardly revised 0.5% increase. The May savings rate as a percentage of disposable income was 3.2%. Excluding food and energy, the PCE Core Index was 0.2% higher m/m, matching expectations and the prior month’s unrevised gain. The index was 2.0% higher y/y, above estimates of a 1.9% gain and April’s unrevised 1.8% rise.
The final June University of Michigan Consumer Sentiment Index was adjusted lower to 98.2, from the preliminary 99.3 figure, versus forecasts to dip to 99.0. The index was slightly above May’s 98.0 level. The downward revision came as the expectations and current conditions components of the report were both adjusted lower, with the former down and the latter up versus May’s figures. The 1-year inflation forecast rose m/m to 3.0% from 2.8% and the 5-10 year outlook ticked higher to 2.6% from 2.5%.
Treasuries finished lower, with the yields on the 2-year and 10-year notes rising 2 basis points to 2.53% and 2.86%, respectively, and the yield on the 30-year bond gaining 3 bps to 2.99%.
As central banks move toward tighter monetary policy, global liquidity is declining for the first time in nearly a decade, leading to higher volatility, especially in the riskier segments of the fixed income market. The yield curve will likely continue to flatten and we expect one to two rate hikes by the Federal Reserve in the second half of the year, but short-term rates will likely rise more than long-term interest rates.
We feel, despite a recent pullback in U.S. stocks, and a sharper one in international markets—reflecting both trade worries and the recent strength in the U.S. dollar—we don’t believe it marks the beginning of a more severe correction. Risks of a prolonged trade dispute have risen but it’s too soon to declare war; while the possibility of a positive resolution that would likely be a tailwind for equities. For now, a healthy U.S. economy is an offset to those growing worries. Threats to the current bull market have risen, and they include this being a midterm election year—which have historically been accompanied by larger-than-average drawdowns. We continue to espouse discipline and diversification; but for now it’s in the context of an ongoing bull market.
A fully-loaded economic calendar awaits the markets next week, which will be shortened by the Independence Day holiday. The ISM Manufacturing and non-Manufacturing Indexes will be joined by June auto sales figures, the trade balance and the minutes from the Fed’s June meeting that delivered another rate hike. However, the week will culminate with Friday’s non-farm payroll report, with an eye on the inflation component of wage growth likely garnering the most scrutiny amid the current economic and monetary policy backdrops.
Europe rallies on EU migration deal
European equities traded broadly higher, with technology issues leading the way despite lingering global trade concerns that briefly flared up amid reports that U.S. President Donald Trump wants to pull out of the World Trade Organization (WTO), but Treasury Secretary Mnuchin called the reports an “exaggeration.” Sentiment in the region got a boost from eased geopolitical concerns on the news that the European Union (EU) has reached a deal on migration.
In economic news, German retail sales fell more than expected but the nation’s unemployment change declined more than anticipated, and U.K. Q1 quarter-over-quarter GDP growth was surprisingly revised higher, while a read on Eurozone consumer price inflation rose to 2.0% as expected.
The euro and British pound rallied versus the U.S. dollar following the data and the EU migration deal, but bond yields in the region were mostly lower. The data appeared to preserve the recent uptick in expectations that the European Central Bank (ECB) is nearing the path to monetary policy normalization and the Bank of England (BoE) may be getting closer to a rate hike.
The U.K. FTSE 100 Index was up 0.3%, France’s CAC-40 Index and Italy’s FTSE MIB Index increased 0.9%, Germany’s DAX Index rose 1.1%, Spain’s IBEX 35 Index gained 0.4%, and Switzerland’s Swiss Market Index rallied 1.7%.
Stocks in Asia finished mostly higher to close out a rough week and the quarter, as yesterday the U.S. markets overcame early pressure and finished higher. Trade concerns that have been at the heart of the recent slide in the global markets appeared relatively calm. Japanese equities advanced with the yen extending yesterday’s losses, while a read on consumer price inflation in Tokyo for this month—a leading indicator for inflation—came in hotter than expected and a separate report showed the country’s jobless rate fell to the lowest in a quarter century, per Bloomberg.
Stocks trading in both mainland China and in Hong Kong rallied after the former hit bear market territory earlier this week and comments suggested the People’s Bank of China may be set to loosen monetary policy to combat the recent volatility fostered some optimism. The rebound in China came as the nation is set to deliver some key reads on June manufacturing and services sector activity over the weekend.
South Korean equities gained ground, aided by a stronger-than-expected read on the country’s industrial production for May. Indian shares advanced as the U.S. dollar came under pressure. Emerging markets have seen some heightened volatility as of late on the recent rally in the U.S. dollar and exacerbated by inflation concerns amid the recent jump in energy prices.