Market Update - June 7, 2019Submitted by Jodi Vleck , Beta Wealth Group on May 29th, 2019
For the week ended June 7, 2019
U.S. stocks recovered last week, ending a forgettable month of May with its best week of 2019 so far. By sector, cyclically-sensitive materials recovered by nearly 10% for the single week, followed by technology, while communications and defensive utilities brought up the rear—but remained positive.
Technology stocks experienced early weakness due to the House Judiciary Committee announcing an anti-trust review of several tech companies, along with the DOJ and FTC, although market sentiment seemed to look past these issues over subsequent days. This shift was entirely due to hints of possible Fed easing this year, which out shined all other concerns and pushed sentiment positive. (This was driven by FOMC member comments, which could have been taken out of context, as ‘rate cuts’ were not specifically mentioned, only a reiteration of monetary actions ‘as appropriate’ to support the economy, which is their mandate anyway.) Keeping interest rates low naturally lowers the cost of borrowing for companies and governments, while also reducing the discount rate for risk assets—elevating their fundamental fair values.
Foreign stocks again largely performed nearly in line with U.S equities, helped by a weaker U.S. dollar. European stocks were also buoyed by comments from the ECB that put any interest rate increases on hold by at least six months, as well as signaled a new series of financial stimulus to help spur loan growth. This was in response to continued uncertainty regarding global trade, sluggish European growth and a backdrop of tensions surrounding Italy’s larger-than-allowed deficit. Japan lagged Europe and the U.K. by a bit, during a week where the World Bank cut forecasts slightly to 0.8% for 2019. Australia also lowered its key interest rate by a quarter-percent to 1.25%, in order to sustain its ongoing expansion. Emerging markets lagged due to lower prices in China, related to perceived slower economic growth due to trade, and retaliatory measures, while other regions were widely divergent.
U.S. bonds fared positively, with interest rates declining, as a result of the earlier-mentioned Fed comments, which markets took as lowering the bar for stimulus actions this year. Governments and corporates in the U.S. performed largely in line, while high yield outperformed along with risk assets. Foreign developed and emerging market bonds performed similarly in local terms, but a weaker dollar boosted returns by over a percent.
Commodities were mixed on the week, with precious metals and energy higher, while industrial metals lost ground. The price of crude oil gained roughly a percent to just a penny under $54/barrel, with sentiment continuing to be split between higher U.S. supplies and fears of global demand decline. As an indication of crude’s recent volatility, despite a double-digit decline in May, prices remain up nearly 20% year-to-date, while down almost -20% on a trailing one-year basis.