Economic Update 7-16-2018

• Economic data for the week was focused on inflation, with the PPI and CPI both showing gains, and a stronger pace on a year-over-year basis.  Labor data, based on job openings and claims, continued to fare well.
• Equity markets rose globally, proving strongest in the U.S., and more tempered abroad.  Bonds were little changed in keeping with little interest rate volatility, with corporate faring better than governments.  Commodities fell sharply due to a stronger dollar and led by a backward move in oil prices with anticipated additional supply coming.

U.S. stocks rose on the week as trade tensions seemed to abate, despite the increased announcements of further potential tariff actions later this year, including adding 10% tariffs on $200 bil. of Chinese imports, such as electronics, textiles, metal components and auto parts—key export items.  From a sector standpoint, tech, industrials and cyclicals fared best, with gains well over +2% for the week, while defensive utilities fell by over a percent.  Earnings season for Q2 is beginning in earnest this coming week, which may drive higher volatility than has been seen in recent weeks.

Developed market foreign equities only gained minimally as the dollar strengthened again.  Japanese stocks posted their best gains in local terms in six months to lead the regional group; emerging market fared far better, retaining more of their gains on the week, although results were sporadic.  Chinese stocks gained several percent, bucking their trend of weakness (down -20% year-to-date), in addition to gains in other Asian nations—although no prospects were seen of tariff negotiations.  Turkey suffered an additional -10%-plus decline as investors worried about nepotism and a consolidation of power that could lead to a eroded central bank independence and

U.S. bonds were little changed as interest rates barely budged across the yield curve.  However, credit in both investment-grade and high yield outperformed governments as spreads tightened in keeping with better risk appetites during the week.  Foreign debt saw developed markets falling sharply in keeping with a stronger dollar, while emerging market debt was mixed.

Real estate fell back on the week, despite strong gains in equities and minimal changes in interest rates.  Asia and Europe lost ground as well, albeit to a lesser degree than the U.S.  Residential held up best with flattish results, while other groups generally moved together.

Commodities experienced dramatic declines on the week, in almost all segments, in conjunction with a stronger dollar, and bucking a trend of recent strength in the asset class.  Crude oil experienced its largest one-day drop in about three years, ending the week down nearly -4% to just over $71/barrel.  This appeared due to a variety of cross-currents, including expectations for supply coming back online from Libya, reports of rising U.S. output (including possible tapping of the national Strategic Petroleum Reserve) as well as speculation on increased Russian and Iranian supplies.  Industrial metals and agriculture appeared to continue their suffering in light of U.S.-China trade disputes, which would lower demand.

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.