Investment Commentary – June 4, 2019

Year to Date Market Indices as of Market Close June 4, 2019
Dow 25,330 (8.62%)
S&P 2,803 (11.84%)
NASDAQ 7,528 (13.44%)
Gold $1331 (3.67%)
OIL $3.57 (16.96%)
Barclay Bond Aggregate (3.46%)
All World Index (8.08%)

Stocks Jump Most Since January on Jolt From Powell: Markets Wrap

U.S. stocks climbed the most since January as Federal Reserve Chairman Jerome Powell signaled openness to rate cuts and Mexican officials said they expect to avoid Trump administration tariffs.

Big banks surged as Wells Fargo analyst Mike Mayo said the industry would be set to “party like it’s 1995” if rates are cut. Treasury yields rose from multiyear lows as Powell stopped short of signaling an imminent move. Carmakers and chip manufacturers rallied as Mexico’s president said he hopes to reach a deal with the U.S. before next week’s deadline, with his foreign minister seeing 80% odds to negotiate a solution. The peso jumped.

“Given the ongoing uncertainty on both the interest rate and trade front, any clarity will likely be welcomed by the market,” said Mike Loewengart, vice president of investment strategy at E*TRADE Financial. “A lot of market-watchers will be reading the tea leaves from this week’s jobs data, which could hold significant weight for the Fed’s next rate move.”

Continued strength in U.S. consumer and business confidence outweighs the recession signal being sent by an inverted yield curve — making a rate cut unlikely this year, according to Bank of America Chief Executive Officer Brian Moynihan. He also said that the ongoing trade war isn’t having enough of an impact to warrant recession concern.

Elsewhere, gains in banks, insurers and automakers pushed European stocks higher for a second day. Oil rebounded as signs of tightening supply from OPEC+ temporarily overshadowed concern over global demand.

Here are some notable events coming up:

China President Xi Jinping begins a two-day visit to Russia on Wednesday.

Theresa May steps down on Friday as leader of the Conservative Party.

Friday’s U.S. jobs report is projected to show payrolls rose by 180,000 in May, unemployment held at 3.6%, a 49-year low, and average hourly earnings growth sustained a 3.2% pace.

JP Morgan: The Weekly Strategy Report

In brief
The U.S. president’s announcement of tariffs on Chinese and Mexican imports in May caused risk assets to deliver the worst month of performance this year to date.

Both U.S. and Chinese economic data disappointed, paying back some of the recent strength evident in both economies. Developed economy labor markets remained strong, soothing recession concerns.

Equity market returns suffered in May with many major markets delivering negative returns in the high single digits. Sovereign bonds rallied across the developed world except in Italy, where the results of the European Parliamentary elections set up conditions for escalating tensions with the European Commission.

Trade war developments suggest that a rebound in global trade and capex later in the year are less likely. Although we are more circumspect than a month ago, we still believe growth will hold up reasonably well in the U.S. and prefer to take risk in U.S. equity and credit markets. We remain neutral duration, looking for some stabilization in momentum before considering an underweight.

Around the Web:
Bright spot: The U.S. government’s latest estimate put first-quarter GDP growth at 3.1%, slightly below an earlier estimate. However, it was well ahead of the fourth quarter’s 2.2% figure and a further indication that the economy remains strong for now, despite the recent market slump.

Expanding trade battles: Trade tensions between the United States and China appeared to grow, and the Trump administration raised the stakes in another conflict by announcing plans to impose 5% tariffs on all imports from Mexico beginning June 10, with the threat of a further increase to 25% in October.
Oil tanks again: U.S. crude oil prices dropped nearly 9% to fall below $54 per barrel, extending a recent slide from $65 in late April. A surge in U.S. oil inventory has weighed on prices.

Upcoming events:

Friday: Jobs and unemployment, U.S. Bureau of Labor Statistics

Thursday: First-quarter GDP, second estimate.

Other Notable Indices (YTD)

Russell 2000 (small caps) 9.60
EAFE International 8.06
Emerging Markets 4.41















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.