Market Update

• Global equities higher as oil breaks through $50/barrel. Stocks look to gain for a third straight session after the S&P 500 tacked on another 0.7% yesterday; fueled in party by strength in WTI crude oil, which broke through the $50/barrel level earlier this morning for the first time in seven months. Overseas, European indexes are mostly higher, led by France and Germany. Asia finished modestly higher after a strong open for the Nikkei reversed amid a lack of catalysts and the yen moved higher versus the dollar. Stocks in China took a breather after a run-up on Wednesday, and India’sSensex shot up 1.9% on strong corporate earnings. Elsewhere, COMEX gold is diverging from recent trends as it moves up modestly, and Treasuries are also exhibiting strength as the yield on the 10-year note dips below 1.86%.

Macro View

• April durable goods report suggests some stabilization in manufacturing as Q1 ended and Q2 began, but no reacceleration in capital expenditures yet. Core durable goods orders and shipments (a proxy for the business capital spending portion of gross domestic product [GDP]) were mixed in April, with core orders posting a modest month-over-month decline versus April and core shipments posting a modest gain. In short, although oil prices rebounded in Q1 and into early Q2 as the dollar weakened, and the oil supply glut eased, the manufacturing sector remained under duress. The business capital spending portion of GDP is expected to be a drag on overall GDP when the Q1 GDP figures are reported later this week.

• New claims for unemployment fell 10,000 to 268,000 in the week ending May 21, as distortions from the Verizon strike and late spring break in NYC fade. Spring break in the New York City school system was very late this year and a strike at Verizon likely pushed claims higher temporarily in late April and early May, but now those distortions appear to have faded, leaving claims near historically low levels. More distortions loom, however, with Memorial Day, the end of the school year, and the annual auto plant shutdowns on the horizon. Claims are up 4,000 from their level 26 weeks ago. In the past, claims need to rise more than 75,000 over a six-month (26-week) period to indicate a recession, so clearly there is no recession signal from claims. The level of claims continues to point to a solid labor market, but we will continue to watch them closely.

• Second day of nice gains. Yesterday was the 100th day of the year for the S&P 500 and it was a solid day. In fact, the S&P 500 has gained 2.1% the past two days, for the best two-day gain since March 1 and 2. Technically, the S&P 500 is just beneath the 2,100 level and this area has been strong resistance going back as far as a year.

• Crude over $50. Crude oil is above the psychological $50/barrel level for the first time since November 2015. Given it bottomed near $26/barrel in mid-February, the recent strength has caught many off guard. Of course, coming into the February lows, crude was in the longest bear market and more than 80% off its previous peak, making the potential for a strong bounce high.

• Happy birthday to the Dow. The Dow Jones Industrial Average turns 120 today, as it was founded by Charles Dow on May 26, 1896. The price-weighted index is known as the granddaddy of U.S. stock market benchmarks. Today on the blog, we will take a closer look at this index and maybe even sing happy birthday.

Monitoring the Week Ahead

Thursday

• Durable Goods Orders and Shipments (Apr)
• G7 Leaders Summit in Japan
• Japan: CPI (Apr)

Friday

• Consumer Sentiment and Inflation Expectations (May)
• Yellen (Dove)
• G7 Leaders Summit in Japan

Sunday

• Bullard (Hawk)
• Japan: Retail Sales (Apr)

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.

Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.

Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.

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