Investment Commentary – July 18, 2018

Year to Date Market Indices as of Market Close July 18th, 2018
Dow 25,181 (2.82%)
S&P 2,813 (6.18%)
NASDAQ 7,850 (13.79%)
Gold $1,227 (-6.98%)
OIL $68.55 15.86%)
Barclay Bond Aggregate (-1.35%)
Fed Funds Rate 2.0% (last increase was 6/13/18)

Dow bucking downbeat trend, gains powered by rise in UnitedHealth and Boeing stocks

The Dow Jones Industrial Average late-morning Wednesday was trading near its highest level of the session, with its gains powered by UnitedHealth Group Inc. UNH, +1.95% and Boeing Co. BA, +1.22% Shares of the UnitedHealth and Boeing were contributing a combined 54 points to the price-weighted Dow DJIA, +0.28% The benchmark most recently was up about 40 points, or 0.2%, at 25,159, trading near session highs. UnitedHealth’s shares were up about $4.19, or 1.7%, while those for industrial giant Boeing were climbing by $3.88 or more than 1%. A $1 move in any one of the Dow’s components translates to a roughly 6.8-point swing in the equity gauge. Meanwhile, the S&P 500 index SPX, +0.16% was virtually flat on the day, while the Nasdaq Composite Index COMP, -0.03% was down by about 0.2%.

Fed Says Economic Growth Holding Up Even as Trade Concerns Spread

The U.S. economic expansion rolled along and labor markets tightened in June and early July, even as tariffs heightened concern among manufacturers and boosted some producer prices, a Federal Reserve survey showed.

The central bank’s Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks through July 9, said 10 of the districts reported “moderate or modest” growth.

“Manufacturers in all districts expressed concern about tariffs and in many districts reported higher prices and supply disruptions that they attributed to the new trade policies,” according to the report, released Wednesday in Washington. “All districts reported that labor markets were tight and many said that the inability to find workers constrained growth.”

The report reflected growing anxiety among American companies over the potential impact of trade disputes initiated by President Donald Trump. The levies helped lift lumber and metals prices, though there was only a “slight to moderate” passing along of those costs to consumers.

Pricing pressures are expected to intensify further in some districts, according to the Beige Book. In others, they will continue at a modest to moderate pace.

The U.S. has slapped tariffs on steel and aluminum shipments from trade partners, and targeted $34 billion in Chinese imports, with another $16 billion to follow soon. China, the European Union and others have retaliated with duties on American exports.

Earnings roll in: Some of the nation’s biggest banks reported second-quarter results in the kickoff to an earnings season that’s expected to be a strong one, in part due to the impact of tax cuts. Profits for companies in the S&P 500 are forecast to grow around 20% compared with last year’s second quarter, according to FactSet.

Midyear momentum: Stocks’ strong start to July continued as the major U.S. indexes posted solid gains for the second week in a row. The Dow recorded three daily triple-digit point gains, while the S&P 500 climbed above the 2,800 level for the first time in more than five months.

Volatility subsides: Although stocks have made some big daily moves in recent days, investors’ expectations of near-term volatility have decreased markedly, as measured by the Cboe Volatility Index. As of Friday’s close, the VIX had fallen about 32% from its level of June 27, a recent high point. The index is down 67% from its year-to-date high, which was reached in early February.

Other Notable Indices (YTD)

Russell 2000 (small caps) 10.60
EAFE International -2.05
EAFE Emerging Markets -3.96
Shiller Annuity Index 8.74

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.