Market Update

• Global stocks down sharply, safe havens up. U.S. equities are moving lower this morning, in tandem with foreign indexes, after the S&P 500 flirted with record territory early last week before Friday’s pullback of nearly 1% left it at 2096.07. Overseas, Asian markets plunged overnight as strength in the Japanese yen sank the Nikkei Index; China’s Shanghai Composite also lost more than 3%. European equities are faring little better in midday trade as nervous investors shift money to safe havens as the Brexit vote approaches with little clarity on a potential outcome. Risk-off trading is pushing COMEX gold higher, now within sight of $1300/oz., while WTI crude oil is down.Treasury yields are moving lower ahead of the Federal Open Market Committee (FOMC) meeting later this week; no rate hike is expected. The yield on 10-year Notes finished last week at 1.65%.

Macro View

• Central Banks dominate the week ahead. The Federal Reserve Bank (Fed), the Bank of Japan, and the Bank of England all meet this week, and although none are expected to change policy, what they say about the economic and inflation outlook may resonate over the next few months. On the U.S. data front, June reports on homebuilder sentiment and manufacturing activity in Philadelphia and New York, as well as May data on small business sentiment, CPI, retail sales, and industrial production will provide plenty for market participants to talk about, when they are not talking about the Fed. Overseas, China will release its May property price data later this week while data in the U.K. on retail sales, industrial production, inflation, and unemployment will provide the backdrop for the run-up to the Brexit vote on June 23.

• China data for May is mixed. Data on retail sales, industrial production (IP), and fixed asset investment released over the weekend is mixed at best. China reported that its May IP (+6% year over year) and retail sales (+10% year over year) data matched expectations, but fixed asset investment, at 9.6% year-over-year, fell short of expectations (10.5%) and decelerated from April. On balance, the data continues to suggest sluggish growth in China, no hard landing, but no reacceleration in growth evident either and the state involvement in the Chinese economy remains elevated.

• Federal Open Market Committee (FOMC) FAQ. This week’s Weekly Economic Commentary discusses some of the key questions market participants are asking ahead of this week’s FOMC meeting. We’ll discuss the dot plots, the Fed in an election year, financial conditions, and what’s priced in.

• The “Brexit” vote is upon us. The June 23, Brexit vote to determine whether the U.K. will remain part of the European Union has roiled markets recently and may have a highly detrimental effect on global financial markets. Equity markets are expected to sell off in the event of a “leave” vote, particularly impactful for financial and commodity related companies globally. We discuss other potential impacts in this week’s Weekly Market Commentary.

• Another flat week. After the disappointing jobs data, Friday saw the largest drop for the S&P 500 in nearly four weeks, at 0.9%. For the week, the S&P 500 lost only 0.1% though, which came on the heels of the smallest weekly gain for the S&P 500 ever during the week prior. In other words, in the end, the past two weeks have seen very little movement ahead of the Fed decision and the Brexit vote. Financials lagged for the week, global interest rates continued to plunge, while energy and consumer staples led.

• No new highs yet. Technically, the S&P 500 got up around the 2,120 area before selling off on Friday. This area was close to the early November peak as well. With the all-time high just above at 2,131, we’ve noted many times how much trouble the S&P 500 has had once it gets up above the 2,100 area. This area has been and continues to be a very strong area of resistance.

Monitoring the Week Ahead

Monday

Tuesday

• Retail Sales (May)
• UK: CPI (May)

Wednesday

• Empire State Mfg. (Jun)
• FOMC Statement
• FOMC Economic and Dot Plot Forecasts
• Yellen Press Conference
• UK: Jobless Claims and Unemployment Rate (Apr)
• Russia: GDP (Q1)

Thursday

• Philadelphia Fed Index (Jun)
• CPI (May)
• NAHB Housing Market Index (Jun)
• UK: Retail Sales (May)
• Japan: Bank of Japan Meeting (No Change Expected)
• UK: Bank of England Meeting (No Change Expected)

Friday

• Housing Starts (May)
• Mario Draghi Speech in Munich
• China: Property Price Indexes (May)

Saturday

 

Click Here for our detailed Weekly Economic Calendar

 

Important Disclosures

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

Treasury inflation-protected securities (TIPS) help eliminate inflation risk to your portfolio, as the principal is adjusted semiannually for inflation based on the Consumer Price Index (CPI)—while providing a real rate of return guaranteed by the U.S. government. However, a few things you need to be aware of is that the CPI might not accurately match the general inflation rate; so the principal balance on TIPS may not keep pace with the actual rate of inflation. The real interest yields on TIPS may rise, especially if there is a sharp spike in interest rates. If so, the rate of return on TIPS could lag behind other types of inflation-protected securities, like floating rate notes and T-bills. TIPs do not pay the inflation-adjusted balance until maturity, and the accrued principal on TIPS could decline, if there is deflation.

Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk.

Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.

High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.

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