Monday, June 10, 2019

Week In Review | June 10 2019

Ross Mayfield, CFA
Author position
Correspondent Research 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.

Stocks Rally in Best Week of Year

  • US stocks rallied last week, as the S&P 500 gained 4.5% in its best week of 2019. In a stark reversal of May’s finale, all 11 sectors finished positive, with Materials gaining over 9%. Technology also fared well, gaining ~6% despite anti-trust and global trade/supply chain worries.
  • The Hilliard Lyons View: Market fears momentarily reversed Tuesday, when Fed Chairman Powell indicated that the Federal Reserve would act to support the US expansion in the face of a trade war, if necessary. The market seemed to interpret this as a sign of easier monetary policy to come; bond futures point to an ~80% chance of a rate cut by August. A weak jobs report (see below) only added fuel to this fire. Still, while the vote of confidence seemed much needed, a rate cut (or two) from a historically low starting level would only structurally change so much. Just ~2.5% from S&P 500 all-time highs, we still see headline risk in the form of taxes (tariffs) and regulation (anti-trust rhetoric aimed at tech stocks).

The S&P 500 gained 4.5% in its best week of 2019.

Slowing but Growing

  • Last week’s heap of economic data points to an economy that is still expanding, though at a slowing rate. ISM Manufacturing and Non-Manufacturing PMIs are both still expanding, albeit at rates below cycle highs. Further symbolizing this trend, Friday’s jobs report showed only 75K jobs added in May (vs. 180K expected) and slowing wage growth.
  • The Hilliard Lyons View: Friday’s significant jobs miss prompted a wave of negative headlines to end the week. If 75K holds, it would be the 4th worst month for jobs in the past five years. Further, March and April were both revised downward by over 30K each. Still, this monthly figure can be noisy and is almost always subject to revisions. Wage growth at 3.1%, though slowing, is still quite healthy, and the employment situation is even better. The jobless rate remains at 50-year lows, and it is worth noting that there are currently more job openings than unemployed people. We are now in year 11 of the longest economic expansion in history – muted growth and volatile employment data should be more common going forward.

Yields Tumble (Again)

  • Treasury rates dropped for the 6th straight week, while the 10yr tested a new 30-month low.
  • The Hilliard Lyons View: Yield curve watchers got good news across the board this week, as the 3mo-10yr, 1yr-10yr, and 2yr-10yr Treasury curves all made positive moves against inversion (or further inversion in one case).

A Look Ahead

  • The Hilliard Lyons View: We are keen to see how the market reacts to the US-Mexico deal agreed to over the weekend. Futures are pointing to a positive open, but with the S&P 500 coming off of its best week in six months, we believe some kind of deal may have been largely priced in. Economic data will also be in focus following Friday’s jobs report; JOLTS, consumer confidence, retail sales, and inflation data are all out this week. CPI will be important to watch as the Fed considers its near-term rate path.

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.