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Week in Review

Week Ending: Friday, June 8, 2018

Recap & Commentary

Markets ended the week higher, brushing off trade-related headlines while appearing to take a wait-and-see approach. Benefitting from continued gains in the tech sector, the tech-heavy NASDAQ hit a new all-time high.

As has been the case for a while now, headlines continued to focus on trade and, specifically, on the growing tensions between the U.S. and its North American and European trading partners. For their part, however, domestic markets seemed relatively sanguine, generally moving higher over the course of the week. Over the weekend, G-7 leaders gathered in Quebec for what proved to be a rather contentious meeting.  While meeting face-to-face, President Trump and other leaders did their best to appear collegial.  However, leading up to and following the meeting, Trump and Canadian PM Justin Trudeau traded a number of barbs via Twitter suggesting that the two sides remain far apart on trade.

Somewhat overlooked during the week was a 6% decline in the Brazilian stock market. The country has recently been faced with labor strikes and a general pall hanging over the country ahead of October’s Presidential election. Markets are concerned about the outcome, as market-friendly candidates have failed to gain traction, according to recent polls. On Friday, Brazil’s currency, which had been battered of late, received a reprieve as the central bank pledged additional liquidity to support it. The move helped to reduce fears of an emerging market contagion.

Economic Bullet Points

Manufacturing — Factory orders for US goods fell in April, weighed down by a continued decline in aircraft and other transportation and equipment orders. The underlying trend after stripping out volatile orders for civilian aircraft, however, continues to suggest strong US manufacturing momentum. Additionally, economists expect April’s 0.8% decline to be temporary amid strong manufacturing conditions in May and favorable ISM manufacturing survey results after a jump in orders.

The US Services Sector reached its 100-month overall expansion in May, according to the ISM non-manufacturing index which grew to 58.6 from 56.8 in April, beating the 57.6 estimate. Tariffs and NAFTA negotiation discussions were notable concerns, but sentiment among service sector industry leaders remains upbeat.

International Trade — The US trade deficit narrowed to its lowest level since September, $46.2B, after oil and fuel export levels reached a record $19.9B in April. The gap, while still considered high, decreased 2.1% from the prior month.

 Productivity & Costs — U.S. worker productivity rose more slowly than expected through March while labor costs grew at a slightly faster clip, a potential headwind to stronger economic growth going forward.

 Jobless Claims fell 1K to 222K vs. the 220K estimate—an overall positive reading.

Of Note

  • The Department of Labor announced that job openings now outnumber job seekers for the first time since the department began tracking the data in 2000.
  • Social Security is expected to dip into its reserves in 2018 for the first time since 1982. That is three years sooner than what was expected just one year ago.
  • According to Moody’s Investor Service, the top 25 companies within the S&P 500 account for 56% of the $1.9T in cash held by the index components, while the top 50 hold 68% of the cash. The bottom 250 essentially hold zero.

Market Indices Week of 6/08

S&P 500                         1.6%

Russell 2000                 1.5%

MSCI EAFE                   0.9%

MSCI EM                        0.5%

Commodities              -0.5%

Barclay’s Agg.             0.22%

US Dollar Index           -0.7%

10-Yr Yield                     2.95%

WTI Oil ($/bl)                    $66

Gold ($/oz)                    $1,298

The Week Ahead

  • Small Business Optimism
  • CPI
  • PPI
  • Jobless Claims
  • Retail Sales
  • Industrial Production
  • Consumer Sentiment

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