Market Updates

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GWA presents the Commonwealth Financial Monthly Market Update

Market Update

August 13, 2018

Presented by Kris Maksimovich:

General market news

  • Rates opened lower across the curve on Monday, with yields for the 10-, 30-, and 2-year Treasuries at 2.84 percent, 3.02 percent, and 2.58 percent, respectively. The spread between short and long rates continued to be off its July 9 low, although it has come down considerably from its late July widening. Investors seem to be debating whether to bet on a strong U.S. economy or volatile global markets. The uncertainty surrounding policy continues to complicate the decision.
  • The three major U.S. indices were mixed last week, as earnings season began to wind down and geopolitics again grabbed headlines. As of Friday, more than 91 percent of S&P 500 Index companies had reported earnings for the second quarter, leading to a blended estimated earnings growth rate of 24.6 percent, per FactSet. CVS Health Corp., Roku Inc., and Berkshire Hathaway all posted earnings that beat expectations.
  • The week’s principal headline wasn’t earnings related. It came from Elon Musk, who tweeted that he was looking to take Tesla private at a price of $420 per share. Subsequently, trading of the stock was halted because the company hadn’t yet published anything related to the news. Details remained unclear surrounding the private offer.
  • On Friday, trade news also grabbed the headlines. Turkey’s lira declined following a doubling by the U.S. of metal sanctions. The Turkish currency sold off more than 20 percent, leading to fears of contagion. Turkey has large amounts of debt dominated by the U.S. dollar and euro, which added to the pressure as the lira weakened.
  • Last week was slow on the economic news front, with only two major updates. On Thursday, the Producer Price Index came in slightly below expectations, with year-over-year growth of 3.3 percent. A decline in energy prices contributed to this lower-than-expected reading.
  • On Friday, the Consumer Price Index came in as expected, with year-over-year growth of 2.9 percent.
Equity Index Week-to-Date Month-to-Date Year-to-Date 12-Month
S&P 500 ─0.18% 0.70% 7.21% 16.79%
Nasdaq Composite 0.40% 2.24% 14.29% 24.80%
DJIA ─0.44% ─0.24% 3.82% 17.47%
MSCI EAFE ─1.46% ─2.63% ─2.61% 4.05%
MSCI Emerging Markets ─0.99% ─2.22% ─6.55% 2.08%
Russell 2000 0.82% 0.99% 10.63% 22.29%

Source: Bloomberg

Fixed Income Index Month-to-Date Year-to-Date 12-Month
U.S. Broad Market 0.52% –1.08% –0.69%
U.S. Treasury 0.61% –0.89% –1.30%
U.S. Mortgages 0.54% –0.53% –0.24%
Municipal Bond 0.05% 0.05% 0.57%

Source: Morningstar Direct 

What to look forward to 

With a wide range of data scheduled for release, this will be a busy week for economic news.

On Wednesday, retail sales are expected to show 0.1-percent growth for July, down from 0.5 percent in June, on a decline in gasoline prices and auto sales. There is some downside risk here. Auto sales at the manufacturer level have been quite weak, and that may have more of an effect on retail auto sales than anticipated. Core retail sales, which exclude autos, are expected to do much better. July’s growth should remain steady at 0.4 percent, the same as for June. Although core spending remains healthy, the slowdown in auto sales will most likely take overall spending down after the strong second quarter.

Also on Wednesday, the industrial production report is expected to pull back a bit. It is expected to go from a 0.6-percent gain for June, on an increase in oil drilling, to a 0.4-percent gain for July. An even bigger pullback, from a 0.8-percent gain in June to a 0.3-percent gain in July, is anticipated in manufacturing. This number would likely reflect a return to normalized production, after a bounce in June following a fire in May that had disrupted auto industry supply chains. As with retail sales, although these figures would be somewhat weaker than the previous month, they would still signal continued economic growth.

We will also get a look at the housing sector on Wednesday, when the National Association of Home Builders (NAHB) survey is released, and on Thursday, when the housing starts report is published. The NAHB survey is expected to tick down slightly, for the second month in a row, from 68 in July to 67 in August, on a lack of labor. Housing starts are expected to bounce back partially, to 1.27 million (annualized) in July, after a significant drop in June to 1.17 million. The data for both measures is likely to remain constrained by rising supply and weakening demand. If the numbers come in as anticipated, they will leave open the possibility that housing is slowing, as suggested by previous data.

Finally, the University of Michigan’s consumer sentiment survey, released on Friday, is expected to show confidence holding steady, at 97, from July to August. Historically, this is a high level. It suggests that consumers aren’t yet worried about the effects of a trade war, given a decline in gas prices and the recent stock market surge.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

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Kris Maksimovich is a financial advisor located at Global Wealth Advisors 18170 Dallas Parkway, Suite 103, Dallas, TX 75287. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (972) 931-3818 or at info@gwadvisors.net.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®

 

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GWA presents the most recent market update from Commonwealth Financial Network

Market Update

August 6, 2018

Presented by Kris Maksimovich:

General market news

  • After jumping as high as 3.01 percent last Wednesday—the same day that the Federal Reserve (Fed) decided not to raise rates—the yield for the 10-year Treasury opened at 2.95 percent this morning. The yield for the 30- and 2-year Treasuries opened at 3.09 percent and 2.64 percent, respectively.
  • The yield curve remains very flat, and the spread between short and long rates remains slightly off its lows. It looks as if the Fed will hike rates in September—or at least once more this year—possibly pushing the curve to new cycle lows in terms of spreads.
  • As noted above, surprising few observers, the Federal Open Market Committee did not raise interest rates at last Wednesday’s meeting. It did, however, provide “strong” hints of a September hike by repeatedly noting the strength of the U.S. economy.
  • The three major U.S. indices were all up last week. They were led by the Nasdaq, which posted a 0.98-percent gain. Despite continued volatility surrounding U.S.-China trade policy, stocks seemed to brush off the continued noise, as strong earnings helped support markets.
  • On Tuesday, Bloomberg reported that the U.S. and China were trying to restart their trade talks to avoid a trade war, but the Wall Street Journal later suggested that these talks were in the preliminary stages. As the week went on, volatility ramped up further, as the Trump administration confirmed that it was considering raising the $200 billion tariff on Chinese goods to 25 percent from the previously planned 10 percent.
  • In the earnings picture, Apple calmed technology and FAANG stock (i.e., Facebook, Amazon, Netflix, and Google) fears, as strong service revenue growth and pricing helped it beat earnings. On Thursday, the tech giant’s stock passed $1 trillion in market cap—the first company’s valuation ever to do so.
  • Last week was a busy one for economic updates. On Tuesday, personal income and personal spending both showed growth of 0.4 percent in June, matching expectations.
  • On Wednesday, the Institute for Supply Management Manufacturing index declined slightly. Even so, manufacturers’ confidence is still at an expansionary level.
  • Finally, Friday saw the release of July’s employment report. Last month, 157,000 new jobs were added, against expectations for 193,000. Although the headline figure disappointed, June’s report was revised up by 35,000, nearly enough to offset the shortfall.
Equity Index Week-to-Date Month-to-Date Year-to-Date 12-Month
S&P 500 0.80% 4.63% 7.40% 16.88%
Nasdaq Composite 0.98% 4.06% 13.83% 24.12%
DJIA 0.05% 5.04% 4.28% 18.29%
MSCI EAFE –1.45% 1.26% –1.17% 4.84%
MSCI Emerging Markets –1.67% 1.01% –5.61% 3.05%
Russell 2000 0.63% 1.91% 9.73% 19.95%

Source: Bloomberg

Fixed Income Index Month-to-Date Year-to-Date 12-Month
U.S. Broad Market 0.09% –1.50% –0.87%
U.S. Treasury 0.07% –1.42% –1.37%
U.S. Mortgages 0.11% –0.95% –0.43%
Municipal Bond –0.11% –0.11% 0.73%

Source: Morningstar Direct 

What to look forward to

This week’s data is all about prices—and whether inflation is picking up.

On Thursday, the producer price reports are expected to show that the headline index, which includes energy and food, rose 0.3 percent for July, the same as the 0.3-percent increase in June. There may be some downside here, on declining energy prices. The question will be how much that factor is offset by tariff-driven increases in other input prices, especially steel and electronics. The annual change is expected to stay stable at 3.4 percent, indicating that longer-term inflation pressures remain above the Fed’s target range. The core index, which excludes energy and food, is also expected to remain steady at 0.3 percent for July, the same as for June. The annual number should remain solid at 2.8 percent. Although these figures are stable in the aggregate, under the surface, tariffs are reportedly driving a faster rise in inflation. The effect of tariffs, however, is not expected to show up in the aggregate numbers yet.

Also on Thursday, the consumer price reports are expected to show rising inflation at the headline level. The headline index, which includes food and energy, is expected to have risen 0.2 percent in July, up from 0.1 percent in June. The annual figure is also expected to have risen from 2.9 percent in June to 3 percent in July. The core price index, on the other hand, is expected to remain steady, with the monthly figure at 0.2 percent and the annual figure staying put at 2.3 percent. As with the producer price numbers, these figures would indicate that inflation continues to run above the Fed’s target levels, which should continue to drive interest rates up. 

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

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Kris Maksimovich is a financial advisor located at Global Wealth Advisors 18170 Dallas Parkway, Suite 103, Dallas, TX 75287. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (972) 931-3818 or at info@gwadvisors.net.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®

 

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July Monthly Market Update Figure

Market Update

Month Ending July 31, 2018

Presented by Kris Maksimovich:

Strong July for global markets

Global markets had a strong July, rebounding from a volatile June. Here in the U.S., the S&P 500 Index gained 3.72 percent while the Dow Jones Industrial Average grew 4.83 percent. The Nasdaq lagged its counterparts with a gain of 2.19 percent, after a technology sell-off pulled down performance at month-end.

Better-than-expected fundamentals supported the positive returns. Spurred by the strong economy, corporate sales have taken off. Almost three-quarters of S&P 500 companies have reported sales increases above expectations, which is significantly above the five-year average. The size of the beats has also been above average. Not only is sales growth doing well in absolute terms, but it is surpassing expectations, which is positive for market performance.

Sales matter, but it is the money a company keeps—its earnings—that matter more. The news here was also very good, with five out of six companies beating estimates thus far. Earnings growth for the third quarter is also better than expected; it was 21.3 percent as of July’s end, up from an estimated 20 percent on June 30.

Fundamentals drive long-term performance, so the second quarter was very positive. Moreover, analysts project double-digit earnings growth for the rest of the year.

Technicals were also supportive for U.S. markets. Although it began the month below its 200-day moving average, the Dow finished July above this trend line. The other two major indices remained well above their respective averages throughout the month.

International markets bounced back in July after a weak June. The MSCI EAFE Index finished the period up 2.46 percent. Emerging markets posted similar returns, with the MSCI Emerging Markets Index rising 2.28 percent.

Technicals for developed and emerging markets were challenging in July, as the June pullback proved too deep to recover from in just one month. Both indices stayed below their long-term trend lines.

Finally, fixed income had a difficult July, as a rise in rates on the long end of the curve at month-end upset markets. The yield for the 10-year U.S. Treasury rose from 2.87 percent to 2.96 percent during the month. Typically, rising rates are bad for bond returns, and the Bloomberg Barclays Aggregate Bond Index rose just 0.02 percent in July.

High-yield corporate bonds, usually less tied to interest-rate moves, had a better month. Interest rate spreads compressed slightly in July. The Bloomberg Barclays U.S. Corporate High Yield Index rose 1.09 percent, showing that investors are still comfortable paying up for higher yields. 

Economic reports point to faster growth

The global economy continued to grow, and the U.S. in particular grew faster in the second quarter. Second-quarter U.S. gross domestic product (GDP) growth came in at 4.1 percent, the highest level since 2014, as illustrated in the chart below. Meanwhile, first-quarter growth was revised up from 2 percent to 2.2 percent.

The growth was broad based, engendered by higher consumer spending, solid business investment, and faster government spending growth, along with a notable bump from a surge in exports.

See Figure 1. Real GDP: Percent Change from Preceding Quarter, 2014–2018

Job growth remains healthy as well, despite a lackluster report in July, which came in at 157,000 new jobs versus expectations for 193,000. What this headline figure doesn’t show is that June’s strong employment report was revised up from 213,000 jobs to 248,000, accounting for most of July’s shortfall. The unemployment rate also improved from 4 percent to 3.9 percent, and average weekly hours worked stayed steady at 34.5.

The strong jobs market has helped support consumer confidence. The most recent Conference Board confidence survey rose to its third-highest level since 2000.

With consumers able and willing to spend, consumer spending growth also accelerated. It rose 4 percent against expectations for a more modest 3-percent gain. Retail sales data was also solid, with a 0.5-percent uptick and an upward revision to the prior month’s number. If consumers can continue to spend as they did in the second quarter, we may see GDP growth of more than 3 percent for the rest of 2018.

Although consumers were a bright spot in the second quarter, they weren’t alone in driving growth. Businesses were also confident and willing to spend. The Institute for Supply Management’s Manufacturing and Nonmanufacturing indices continued to post high expansionary numbers, as faster growth and lower corporate taxes led to healthy levels of investment. Business investment for the second quarter grew 7.3 percent, and durable goods orders for June rose a respectable 1 percent. Export growth of 9.3 percent was another bright spot, although here the details suggest that such a large increase isn’t likely to be repeated.

The Federal Reserve (Fed) also seems to be on board with the continuing recovery. Fed Chair Jerome Powell declared victory in congressional testimony in July, with both unemployment and inflation at Fed targets. This is a more positive take on the economy than we have had from the Fed in years, and it ratified the positive data we saw last month. 

But housing disappoints

Not all the news was good. Housing, a key economic sector, appears to have slowed. Both existing and new home sales declined in June, with new home sales falling 5.3 percent. Homebuilder confidence, though still high, appears to be rolling over. Rising construction costs have lowered the profitability of new housing and led to a declining trend in housing starts and permits. During the past few years, builders have been able to pass along cost increases to homebuyers. Given today’s higher prices and rising mortgage rates, however, this trend may be nearing its end.

Some of the slowdown in housing can be attributed to low levels of supply, but another key factor is slumping affordability. Housing prices are climbing faster than incomes, and, as mentioned already, mortgage rates are ticking up.

Housing is among the key drivers of the U.S. economy and a proxy for overall consumer confidence. Even though the financial markets remain strong, and the economy continues to grow, any slowdown in housing growth must be taken seriously. 

Political concerns muted but still there

In July, political stories grabbed the headlines, but domestic markets took the events in stride. Overall, the market’s perception of policy risks seemed to recede, as North Korea moved out of the headlines, and the trade war between Europe and the U.S. was put on hold. China, however, remains a major area of trade concern, with renewed U.S. tariff threats rattling markets at month-end.

In the months ahead, the midterm elections could lead to increased volatility. With a potential government shutdown in play, as well as the disruption brought about by the campaigns, political risks are more likely to rise than to fall. This will be something to keep an eye on as we move toward November. 

Prospects remain positive

Despite very real risks, the positive economic news from July points to continued healthy growth for the rest of 2018. And politics notwithstanding, a healthy economy and rising profits should support the markets. That’s good news, but it doesn’t mean we won’t see volatility.

We should expect that, at some point, the news won’t be as good. But we should take it in stride. Whatever happens, a well-diversified portfolio that matches risk-and-return guidelines is the best path to follow for achieving long-term financial goals. 

All information according to Bloomberg, unless stated otherwise.

Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Barclays Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg Barclays government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Bloomberg Barclays U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.

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Kris Maksimovich is a financial advisor located at Global Wealth Advisors 18170 Dallas Parkway, Suite 103, Dallas, TX 75287. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (972) 931-3818 or at info@gwadvisors.net.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®

 

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GWA presents the most recent market update from Commonwealth Financial Network

Market Update

July 30, 2018

Presented by Kris Maksimovich:

General market news

  • Rates were up across the curve last week, as the 10-year, 30-year, and 2-year Treasuries reached 2.98 percent, 3.10 percent, and 2.67 percent, respectively. The yield curve did steepen, but it remains close to cycle lows. With the recent market resistance, it will be interesting to see if rates move above resistance levels or if the curve continues to flatten.
  • S. markets were mixed last week as we entered peak earnings season. There was a general risk-off sentiment, with technology earnings showing signs of softness. Facebook (FB) sold off sharply due to concerns about increased spending on headcount and overseas monetization as domestic user growth has slowed. Twitter (TWTR) also fell on concerns over user growth. Despite a miss on revenue, Amazon (AMZN) posted strong earnings, as improved operating efficiencies and higher margins offset the sales miss. Alphabet (GOOG/GOOGL) also posted an earnings beat backed by higher-than-expected revenue. Meanwhile, small-cap stocks sold off, as trade tensions between the European Union and the U.S. eased following a meeting between President Trump and European Commission President Jean-Claude Juncker.
  • It was an action-packed week for economic updates. On Monday, existing home sales declined 0.6 percent against expectations for a modest increase. On Wednesday, new home sales also fared worse than expected, dropping 5.3 percent. Existing home supply remains low, as builders have pulled back in the face of rising costs.
  • On Thursday, June’s durable goods orders missed expectations, despite the headline figure rising 1 percent and the core figure growing 0.4 percent. Although these measures of business investment were lower than expected, they represent solid growth.
  • The big news of the week came on Friday, when the first estimate of gross domestic product growth for the second quarter came in at 4.1 percent annualized. This is the highest growth rate since 2014. Much of this growth can be attributed to a rebound in personal consumption, which grew by 4 percent against expectations for 3 percent.
Equity Index Week-to-Date Month-to-Date Year-to-Date 12-Month
S&P 500 0.61% 3.80% 6.55% 16.10%
Nasdaq Composite –1.05% 4.58% 14.38% 24.33%
DJIA 1.57% 4.98% 4.22% 19.43%
MSCI EAFE 1.35% 2.73% 0.30% 7.23%
MSCI Emerging Markets 2.15% 2.73% –3.96% 4.93%
Russell 2000 –1.96% 1.28% 9.04% 17.50%

Source: Bloomberg

 

Fixed Income Index Month-to-Date Year-to-Date 12-Month
U.S. Broad Market –0.03% –1.64% –0.85%
U.S. Treasury –0.46% –1.54% –1.28%
U.S. Mortgages –0.15% –1.10% –0.44%
Municipal Bond 0.23% –0.02% 1.02%

Source: Morningstar Direct 

What to look forward to 

This will be a very busy week for economic news.

On Tuesday, the personal income report is expected to show steady income growth of 0.4 percent for June, just as it did in May. Personal spending growth is expected to rise from 0.2-percent growth in May to 0.4-percent growth in June. While the income numbers look reasonable, there may be some downside risk on spending due to weak retail sales growth. In any case, these numbers would indicate continued expansion.

Also on Tuesday, the Conference Board’s survey of consumer confidence is expected to show a slight pullback from 126.4 to 126. This marginal change would not be cause for concern, as the index would still be coming in at a historically high level.

On Wednesday, the Institute for Supply Management (ISM) Manufacturing index is expected to pull back from 60.2 in June to 59.2 in July. As this is a diffusion index with values greater than 50 indicating expansion, this decline would still be a strong result. Manufacturing has been supported by high international demand and a weak dollar. While these factors are changing, the effects persist.

Also on Wednesday, the Federal Open Market Committee (FOMC) will complete its regular meeting with a public statement. The FOMC is not expected to take any action at this meeting, and there will not be a press conference, so the markets will simply be looking for guidance on whether a September rate hike is coming.

On Friday, the international trade report is expected to show an increase in the trade deficit from $43.1 billion in May to $44.6 billion in June. There may be some downside risk here, as the advance goods trade deficit widened and the tariff-driven boost from Chinese purchases of soybeans will drop off. The dollar’s recent appreciation will also weigh on trade. This report would suggest that the second quarter’s improved trade balance is not likely to last.

Also on Friday, the ISM Nonmanufacturing index is expected to stay steady at a nine-month high of 59.1 for July. This result would indicate continued strong growth.

Finally, Friday’s employment report should continue to show solid growth. Job gains are expected to drop from 213,000 in June to a still strong 190,000 in July. The unemployment rate is likely to drop from 4 percent to 3.9 percent, and the average workweek should stay steady at 34.5 hours. Wage growth is also expected to remain at 0.3 percent for the month and 2.7 percent for the year. This result would add to the current string of strong reports and point to continued economic growth.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

###

Kris Maksimovich is a financial advisor located at Global Wealth Advisors 18170 Dallas Parkway, Suite 103, Dallas, TX 75287. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (972) 931-3818 or at info@gwadvisors.net.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®

 

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