Monday, June 17, 2019

Week In Review | June 17 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.

Impressive Encore for Stocks

  • After posting its best week of 2019 to begin June, the S&P 500 gained another 0.5% last week; small caps performed even better. Emerging Market stocks were higher despite a US dollar index that gained over 1%. Sector performance was somewhat bifurcated; oil dipped.
  • The Hilliard Lyons View: Perhaps the most important catalyst last week was the decision by the Trump Administration to forgo immigration-related tariffs on Mexican imports. The Mexico tidbit boosted stocks Monday, and markets more or less held gains across the balance of the week. Improved (versus April) Industrial Production and Retail Sales data points reported on Friday likely helped calm some fears of slowing growth in the US.

Two Japanese tanker ships were attacked in the Persian Gulf last week.

(More) Shots Fired in the Gulf Region

  • Two Japanese tankers sailing from the U.A.E. were attacked last week near the Strait of Hormuz in the Persian Gulf. A US drone was shot down in the Gulf last week too. The tanker attacks last week follow separate attacks on four ships sailing from Saudi Arabia just over a month ago, and coincided with a visit to Iran by the Japanese Prime Minister. The US State Department has blamed Iran, but no entity has claimed responsibility.
  • The Hilliard Lyons View: Iran seems to be retaliating against renewed trade sanctions levied by the United States. These measures effectively halt the export of Iranian crude oil, which is an untenable situation both politically and economically in Iran. The United States had already been moving military assets to the region, a trend that is now likely to continue with no obvious near-term path to a diplomatic solution with Iran. Oil prices rose on news of the attacks, but were ultimately little changed on the week. A weakening demand outlook seems to be offsetting rising geopolitical risks.

Yields Stable Ahead of Fed Meeting

  • Treasury rates were little changed last week ahead of the Fed’s two-day meeting this week (June 18-19). Credit spreads tightened.
  • The Hilliard Lyons View: Futures markets priced in a Fed rate cut before last week, and we are not surprised to see less volatility from Treasuries alongside a calm week for equities. We do believe recent gains for corporate credit have gone somewhat under the radar. The past fortnight has been particularly strong for high-yield bonds.

A Look Ahead

  • The Hilliard Lyons View: The biggest headlines this week will likely come from the Federal Reserve meeting (press conference on Wednesday afternoon). A rate cut is not expected to occur this week, but a cut is expected in July; any news that changes that market view will likely drive volatility. A handful of noteworthy companies release earnings this week, including: CarMax, Red Hat, Adobe and Oracle. Housing Starts (Tuesday) and the Leading Economic Index (Thursday) highlight economic reports.

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, A Baird Company, 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. Diversification and asset allocation do not guarantee a profit or guarantee against a loss. Note: It is not possible to invest directly in an index.   

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.