Tuesday, May 28, 2019

Week In Review | May 28 2019

Spencer Joyce, CFA
Author position
Vice President | Markets Analyst

Hilliard Lyons’ Investment Strategy & Research team is dedicated to supporting you and your Wealth Advisor. We provide investment guidance and help you separate meaningful news from idle noise via timely market commentary.

Risk-Off Continues

  • The S&P 500 dipped another 1% last week. The index posted its third straight weekly decline, the first such string since Christmas. International equities traded lower, but modestly outperformed US markets. Oil posted its biggest drop of the year, as sagging growth expectations overwhelmed rising tensions with Iran in the Middle East. Utilities and Real Estate were strong, as was Healthcare, although the latter remains the weak YTD.
  • The Hilliard Lyons View: Perhaps the most interesting nugget from last week was the sharp decline in oil prices, which occurred despite a weaker US dollar. This move also flowed counter to conventional wisdom as tension in the Persian Gulf continue to rise, centered on Iran. The reescalation of trade barbs with China is dated news at this point, but the narrative seemed to broadly weigh on global growth expectations last week.

Oil posted its biggest weekly drop of the year.

May, Out

  • British Prime Minister Theresa May announced her resignation last week. She will leave office on June 7, with the next couple of weeks to be spent facilitating elections and the transition. Boris Johnson, a former cabinet member of May’s, is the consensus choice to win the position. The wider candidate field however, includes 10-12 legitimate contenders.
  • The Hilliard Lyons View: A change in leadership likely broadens the range of outcomes for Brexit. Specifically, a second voter referendum is more likely (May was staunchly against this), and a no-deal ‘hard’ Brexit is probably more likely, as well. Handicapping the next few months is difficult prior to selecting the next Prime Minister, but it is worth noting that Mr. Johnson is viewed as one of the more ‘euro-skeptic’ candidates.

Yields Fall

  • Treasury yields were lower for a third straight week. Sovereign yields globally followed a similar path. Many of the same factors impacting equities likely helped support the bond market last week.
  • The Hilliard Lyons View: As defined by the Barclays US Aggregate Index (mostly Treasuries), bonds have made money for investors in each of the past three weeks. Total return has been about 1% in the month of May. Regardless of the prevailing market, maintaining a diversified portfolio is always important.

A Look Ahead

  • The Hilliard Lyons View: Changes in European leadership (British Prime Minister and EU parliamentary changes) will likely be a geopolitical focus this week, but this should not drive any immediate policy changes. Economic data may be more impactful to US markets than earnings data, with Consumer Confidence due out Tuesday and GDP on Thursday representing high profile releases. Nonetheless, several S&P 500 companies will report results. The list includes Costco, Dollar Tree, Salesforce.com, and Dollar General. There are no trade talks scheduled for this week; we continue to look toward a possible meeting between Trump and Xi in late-June as a potential catalyst on this front.

Key Definitions

  • S&P 500 – index composed of ~500 large-cap US equities listed on the NYSE or NASDAQ.
  • Russell 2000 Index – index composed of ~2000 small-cap US companies.
  • MSCI EAFE – index composed of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East. This index does not include US or Canadian companies.
  • MSCI EM - index composed of large and mid-cap securities across 24 emerging markets.
  • Bclys US Agg – (Bloomberg Barclays US Aggregate Total Return Bond Index, Unhedged) total return bond index composed of taxable, dollar-denominated debt.
  • Oil--WTI – represents West Texas Intermediate Crude Oil, a grade of light crude oil used as the underlying commodity in many indices and futures contracts.
  • Oil--Brent – represents Brent Crude Oil, a grade of light crude from the North Sea used as a global benchmark price.
  • IG Spread – (Investment Grade Spread, Bloomberg Barclays USD Liquid IG Corp Average OAS) represents the yield difference between an index of investment-grade rated bonds and a spot Treasury bond curve.
  • HY Spread – (High Yield Spread, Bloomberg Barclays US Corporate HY Average OAS) represents the yield difference between an index of below investment-grade rated bonds and a spot Treasury bond curve.

Important Disclosures

Each client’s investment needs, risk tolerance, and goals are different. This newsletter is not meant to be advice for any specific investor. Nothing in it should be construed as an offer to sell, or a solicitation of an offer to buy, any securities. This should not be used as the sole basis for an investment decision. Any opinions or estimates are subject to change without notice. For information about how any of this information applies to your personal financial situation, please contact your Wealth Advisor.

Past performance is not a guarantee of future results.

Although the information provided to you in this newsletter was obtained or compiled from sources that we believe are reliable, J.J.B. Hilliard, W.L. Lyons, LLC cannot, and does not, guarantee that the information or data is accurate, timely, valid, or complete.

All investing involves risk, including the possible loss of principal. You should carefully consider investment objectives, risks, charges, and expenses of any investment before investing. Diversi-fication and asset allocation do not guarantee a profit or guarantee against a loss.

Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. The bond market is also volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect can be more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks.