Investment Commentary –June 12th, 2018

Year to Date Market Indices as of Market Close June 12th, 2018
Dow 5,320 (2.43%)
S&P 2,786 (4.24%)
NASDAQ 7,703 (11.59%)
Gold $1,299 (-1.50%)
OIL $66.21 (11.14%)
US 10Y Treasury 2.96 (55.01%)
Barclay Bond Aggregate (-2.17%)
Fed Funds Rate 1.75 (last increase was 3/21/18)

Stock market ends higher ahead of Fed decision as tech, consumer-discretionary stocks lead gain

U..S. stocks mostly ended higher Tuesday, though the Dow lagged behind its peers, as shares of technology and consumer-discretionary stocks supported a modest rise in the broad-market benchmark. However, trading action was largely subdued ahead of a key policy decision expected by the Federal Reserve Wednesday afternoon, which could determine the near-term outlook for stocks. The Dow Jones Industrial Average DJIA, -0.01% finished the session little changed at 25,321, less than 0.1% lower but enough to halt a four-session rally for the blue-chip gauge. The S&P 500 index SPX, +0.17% meanwhile, rose by 0.2% at 2,787, buoyed by a 0.6% gain in the technology sector XLK, +0.49% like social-network company Twitter Inc. TWTR, +0.02% and a 0.5% rally in consumer-discretionary names, including shares of Dollar Tree Inc. DLT, +0.99% up 3.1% and Newell Brands Inc. NWL, +2.85% up 2.9%. Meanwhile, the Nasdaq Composite Index COMP, +0.57% advanced 0.6% at 7,704. Trading action on Tuesday followed a historic and closely watched meeting between President Donald Trump and North Korean leader Kim Jong Un in Singapore, which yielded a pact on the denuclearization of the Hermit Kingdom but which was criticized for a lack of specificity. Focus on that meeting gave way to concerns about the outcome of coming central bank meetings including the Fed which concludes on Wednesday and is slated to result in a quarter-point rate hike, leaving benchmark rates at a range of 1.75% and 2%. The European Central Bank’s gathering is set for Thursday.

Bond Traders Brace for Major Moves in Aftermath of Fed Meeting

For a Federal Reserve meeting where a rate hike is seen as a given, the stakes are still huge for bond traders heading into Wednesday’s decision. Investors have piled into front-end wagers and curve plays betting on the timing and pace of rate increases in the second half of the year and beyond. That leaves plenty of room for market moves depending on what Fed officials signal in a few key areas. Namely, their updated dot-plot projections and a potential change to the rate paid on excess reserves. “The importance of this meeting is to get a clear picture of the what-if scenarios for 2018, as there are a lot of balls up in the air,” said Todd Colvin, senior vice president at futures and options broker Ambrosino Brothers in Chicago.

Around the Web:

Breakout week: U.S. stocks finally managed to sustain positive momentum after alternating between small gains and losses over the preceding three weeks. Consumer discretionary stocks led the broader market higher as the Dow climbed nearly 3% and the S&P 500 and NASDAQ rose more than 1%.

Fed ahead: On the heels of reports showing economic growth remains on solid footing, the U.S. Federal Reserve Board is widely expected to approve another increase in short-term interest rates when it concludes a two-day meeting on Wednesday. If the Fed lifts, it would be the third rate hike in six months and the second this year.

Tech leadership: Although information technology stocks lagged the broad market overall in the latest week, the sector has been a standout performer year to date. Wednesday marked the third day in a row that the NASDAQ closed at a record high, and the tech-oriented index is outperforming the S&P 500 and Dow by wide margins this year.

Industry winners and losers this past week:

Bueno: Home Furnishing Stores, Drug Delivery, Photography, Drugs
One year leaders: Drug Delivery, Semiconductors, Gaming, Catalog and Mail Order
No Bueno: Synthetics, Oil & Gas, Foreign Utilities
One year laggards: Shipping, Synthetics, Dairy, Internet Service Providers

Upcoming events: Wednesday U.S. Federal Reserve Board concludes two-day policy meeting, Chairman Jerome Powell holds press conference.

Other Notable Indices (YTD)

Russell 2000 (small caps) 9.61
EAFE International 0.37
EAFE Emerging Markets -0.28
Shiller Annuity Index 7.62

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.