Economic Update 5-29-2018

• Economic data for the week was highlighted by a mixed durable goods report, slightly higher jobless claims, and weak housing results for new and existing home sales, as well as weaker consumer sentiment.
• Equity markets the U.S. performed positively last week, while foreign equities lost ground.  Bonds fared well with rates dropping across various maturities.  Commodities also declined with a pareback in the price of crude oil.

U.S. stocks gained on a lower-volume week, with few macro catalysts to move the needle, other than trade concerns following the President’s cancellation of the June North Korean summit and volatility in oil prices—with the a sharp decline to finish the week.  From a sector standpoint, defensive utilities gained over 3% to lead the pack, while energy fell nearly -5% as oil prices corrected.

Foreign stocks generally lost ground, with developed Europe, U.K. and Japan pulling back by over a percent—this appeared to be a combination of weaker economic data (specifically PMI weakening, although still in expansionary territory), uncertainty about the chances and potential content of a U.S.-North Korean summit, tariff worries (this time over autos), as well as the aftermath of the recent Italian election in regard to it resulting in pro- or anti-Euro sentiment.  Emerging markets fared far better, with minimal losses, although China and Brazil suffered substantial declines.  A stronger dollar on the order of +3% this year has certainly weighed on foreign equities, although cheaper local currencies can boost export activity and act as a self-correcting mechanism to some degree.

U.S. bonds gained sharply on the week, as interest rates declined by over 0.10% along most of the yield curve, as the minutes from the May FOMC meeting were taken as a dovish sign that the Fed was not overly eager to hike rates at a quick pace, by letting inflation run a bit higher than target.  Government and investment-grade corporates performed similarly; however, high yield and bank loans were flat on the week.  Foreign bonds ended the weekly slightly higher, despite a stronger dollar, with emerging market debt outperforming developed.

Real estate gained sharply in the U.S., benefitting from declines in interest rates, while foreign real estate results were positive, but tempered.  Healthcare and lodging fared best, continuing year-to-date strength in the latter.

Commodities declined on the week by over a percent, upon weakness in energy, while metals and agriculture all gained ground.  Crude oil prices initially gained, reaching over $72/barrel on fears of the U.S. imposing new sanctions on Venezuela after a questionable election, correcting sharply to end the week down -5% to a level of $67.88, as rumors surfaced about OPEC plans to increase production.  OPEC continues to ride the line between producing little enough to keep prices elevated, but if prices stay too high for too long, and translates into a burden on consumers, demand could suffer (and perhaps even exacerbate a recession in the worst case) and sabotage the entire effort.

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.