Economic Update 6-06-2016

• Economic data for the short week was mixed, with slightly stronger manufacturing data relative to previous months, while non-manufacturing/services weakened.  Housing prices continued in an upward trajectory.  However, the big government employment report on Friday was a disappointment, and could be enough to keep the Fed on hold for another month at least.

• U.S. and developed foreign stocks were little changed on the week, with the mixed bag of economic data.  Bond prices moved higher with a drop in interest rates and Fed action becoming less likely in June.  Energy prices were little changed on the week, although other commodities gained.

In a shortened week, U.S. large cap stocks ended up with flattish returns, with small caps faring better, up just over a percent.  In the S&P 500, defensive utilities and health care gained the most ground on the week, while financials and energy lagged with negative returns over a percent.

Foreign developed market stocks ended up with nearly the same net result as domestic stocks, with greater Europe and Japan up slightly, and the U.K. losing ground.  Emerging markets led the way, up several percent.  The ECB announced no policy changes at their periodic meeting, but will commence planned corporate bond purchases this coming week.  U.K. returns appeared related to a downgrade in economic growth down below 2%, in addition to continued last-minute concerns over the upcoming Brexit vote on June 23.  Japanese economic data continued to show flatness, although sentiment has taken a negative turn.  Unemployment remains low (at just over 3%), although there is more of an impact on deteriorating labor force participation than in other developed nations.  On the emerging market side, Brazil and China led the way, with attempts by the acting president to cut government spending in the former, and the latter due to rumors that MSCI will add local ‘A shares’ to its emerging markets index in its next review in coming weeks.

U.S. bonds rose with interest rates falling across the curve, due to mixed economic data and, especially, the slow Friday jobs numbers.  Accordingly, longer duration Treasuries performed best, while high yield earned small, but still positive results.  Foreign bonds experienced a solid week in USD terms with the U.S. dollar declining by almost -2%, with both developed and emerging markets gaining ground in local currency terms as well.

Real estate generally rose globally with interest rates falling.  In the U.S., more economically sensitive lodging, retail and healthcare REITs gained ground, while apartment/residential REITs fell by several percent, bringing the year-to-date returns in that segment into the negative.  As traditional new single-family housing numbers picked up a bit, the natural loser would be apartment building projects.

Commodities earned positive returns on the week, even though energy fell backward a bit, with crude oil falling just over a dollar—but staying in the ~$49 range.  Last week’s OPEC meeting in Vienna resulted in no limit on production output, despite a proposal calling for it.  Agriculture was the largest contributor with large gains on the week from wheat and soybeans, while the precious metals group added a bit as well.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.                                                                               

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.