Monday, July 1, 2019

Week In Review | July 1 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.

Stocks Secondary Story

  • The S&P 500 slipped 0.3% last week, but other markets hit notable milestones. Gold finished above $1400/oz. for the first time since it fell through the level during the 2011-2015 bear market for the yellow metal. The 10-yr Treasury posted its first closing yield under 2% since late 2016. Financials and Materials were the leading equity sectors last week, and were the only two sectors to rally in each of the four weeks in June.
  • The Hilliard Lyons View: In a bit of an odd week, some positioning was likely tactical ahead of quarter-end and the Trump-Xi meeting on Saturday. Weakness for Real Estate and Utilities is not necessarily congruent with lower rates, but firming gold and oil markets make more sense to us. Both commodities would likely benefit from a weaker dollar that could be a byproduct of easier monetary policy, as would international stocks, which rallied last week as well.

We agree with betting odds that suggest Kamala Harris was the big debate winner last week.

Dems Debate

  • The Democratic Party held its first round of Presidential debates last week. Twenty candidates were split into two groups, and each hopeful candidate was part of a two-hour event on either Wednesday or Thursday.
  • The Hilliard Lyons View: We generally agree with betting odds that suggest Kamala Harris was the big winner last week. That said, we expect this first round of debates will do as much to winnow out weaker candidates as determine the nominee. Healthcare received lots of attention and is set to again be a lynchpin issue this cycle; Senators Warren and Sanders support abolishing private insurance. Broadly, business received many attacks, but ‘big banks’ were less in focus than for much of the past decade.

Trump and Xi Meet Again

  • Presidents Donald Trump and Xi Jinping held a face to face meeting on Trade at the G-20 summit in Japan over the weekend. Initial reports suggest a resumption of trade talks between the US and China, a lessening of sanctions against Huawei, higher Chinese agriculture purchases, and no immediate new US tariffs.
  • The Hilliard Lyons View: This feels to us much like the last meeting between the two leaders in Argentina, which boosted optimism and provided a delay in tariff escalation. We do not know if progress will ultimately grind to a halt once again later this summer or early this fall, but we do believe near-term market reaction to the meeting will be positive.

A Look Ahead

  • The Hilliard Lyons View: Markets are set to open higher this week in the aftermath of the Trump-Xi summit, but will be closed on Thursday in observance of the 4th of July holiday. Despite the shortened week, there is a fair bit of US economic data to attend to, including the June jobs report on Friday and manufacturing survey data on Monday. In a bit of rarity, there are zero S&P 500 companies scheduled to report results this week, but earnings season will pick up later this month.

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.