Calm before the storm.....?
Submitted by Oram & Kaylor on May 15th, 2017Trying to accurately predict the movement of the financial markets is akin to predicting the weather. No one really knows, and we have to wait to see what actually happens.
Market Commentary for the week of June 5, 2023
Submitted by Oram & Kaylor on June 6th, 2023Persistent headwinds continue to cloud the global markets and have created a very narrow trading range. However; the markets have been resilient so far in 2023. The S&P500 is up double digits YTD. On a positive note, we are finally being paid to have a savings account. We have heard from many clients that they are able to get a Certificate of Deposit (CD) for 4-5%. Great news for your conservative money, but do not overlook the long view. You do want to be left out when once the market stabilizes and moves higher. For those still in the accumulation phase 'dollar cost averaging' is your most powerful tool and for those on the distribution side of life....you will be pleased to know that your fixed income will provide a decent return going forward.
Until Next Time,
Darin & Greg
ECONOMIC REVIEW1 < >
- The US Employment Report showed nonfarm payroll employment gained a sizeable 339,000 jobs in May, versus the expected 195,000.
- The unemployment rate ticked up a bit to 3.7%, from a decade’s low of 3.4% last month.
- The Participation rate remained stable at 62.6% month over month.Prime age participation rate rose a tad to 83.4%, the highest level since 2007.
- April’s Job Openings and Labor Turnover (JOLTS) showed job openings surged to 10.1 million, a three-month high, exceeding all estimates.
- The number of people quitting jobs fell slightly to 3.79 million.Job openings for each unemployed worker rose to 1.8 in April from 1.7 in the prior month.
- The ADP National Employment Report for May ADP exceeded all projections coming in at 278,000.
- Initial Jobless Claims ending May 27, came in at 232,000, slightly cooler than consensus 235,000.
- The ISM Manufacturing Index declined to 46.9 in May, slightly below the consensus expected.(Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The larger-than-expected surge in non-farm payrolls (US Employment Report) pushed US treasury yields higher reflecting the market’s expectation that a strong job report will force the Fed to maintain a restrictive policy. The uptick in the prime age group of the labor market resulted in an increase in the unemployment rate, suggesting that new entrants to the workforce have yet to find employment. US factory activity (ISM Manufacturing Index) was negative for the seventh month in a row, further highlighting the slowdown in manufacturing. Most manufacturers are seeing softer sales and lighter new orders as consumers shift their spending to services. Exports had weakened in response to slower global economic growth.
A LOOK FORWARD
In a much quieter week for economic reports, most eyes will be trained on the ISM Services Index, which releases on Monday and is expected to show an increase to 52.4 from 51.9, month over month.
How does Services data impact you?
- Market participants expect ISM Services to indicate further expansion, despite continuing restrictive monetary policy.
- Signs of a demand pullback have been limited, households continue to spend on services and durable goods.
MARKET UPDATE2
|
Market Index Returns as of 6/2/22 |
WTD |
QTD |
YTD |
1 YR |
3 YR |
5 YR |
|
S&P 500 |
1.88% |
4.53% |
12.37% |
6.04% |
12.89% |
11.32% |
|
NASDAQ |
2.07% |
8.51% |
27.01% |
11.22% |
11.87% |
12.88% |
|
Dow Jones Industrial Average |
2.17% |
1.94% |
2.89% |
4.86% |
10.96% |
8.85% |
|
Russell Mid-Cap |
2.29% |
-0.17% |
3.88% |
-1.42% |
9.76% |
7.38% |
|
Russell 2000 (Small Cap) |
3.32% |
1.83% |
4.62% |
-1.26% |
9.41% |
3.50% |
|
MSCI EAFE (International) |
0.88% |
1.19% |
9.76% |
6.34% |
7.72% |
3.71% |
|
MSCI Emerging Markets |
1.25% |
-0.15% |
3.80% |
-4.54% |
2.31% |
-0.30% |
|
Bloomberg Barclays US Agg Bond |
0.96% |
-0.77% |
2.17% |
-2.04% |
-3.67% |
0.83% |
|
Bloomberg Barclays High Yield Corp. |
1.15% |
0.92% |
4.53% |
1.31% |
2.54% |
3.25% |
|
Bloomberg Barclays Global Agg |
1.15% |
-1.34% |
1.63% |
-3.69% |
-4.64% |
-1.07% |
OBSERVATIONS
- U.S. equities moved higher this week as indicated by the S&P 500 which was up +1.88% on the week.
- In the U.S., smaller-sized companies outperformed their larger-sized counterparts, as the Russell 2000 index increased +3.32% on the week.International stocks as measured by the MSCI EAFE were positive on the week, up +0.88%, underperforming domestic stocks.
- Emerging market stocks were slightly positive on the week with the MSCI EM index up +1.25%.
- Bonds were positive domestically, globally, and across the credit spectrum.
- The Bloomberg US Aggregate Bond Index increased -0.96%; the Bloomberg Global Aggregate Bond Index and US Corporate High Yield Index both climbed +1.15% respectively.
BY THE NUMBERS
The Dollar Is Still King in Europe, and It’s Swaying Interest Rates FRANKFURT—It’s not just Americans watching anxiously to see if the Federal Reserve raises rates or the U.S. slides into recession; so are Europeans, and indeed many other countries. That’s because for all the talk of deglobalization and de-dollarization, the dollar still reigns supreme, and financial and trade ties between the U.S. and key partners are as strong as ever. In Europe’s case, they’re even stronger. The European Central Bank tried to chart a different path from the Fed early last year, signaling it would hold rates low as the Fed raised them aggressively. But after the euro slid against the dollar, ECB officials quickly reversed course over fears of imported inflation from goods like energy that are invoiced in dollars.3
Saudi Arabia cuts oil production again to shore up prices — this time on its own. Saudi Arabia announced Sunday that it would begin cutting oil production by 1 million barrels per day in July to support the "stability and balance of oil markets." Though the country says it doesn't use the cost of crude to make oil production decisions, the move is considered to be an attempt to prop up oil prices in response to global economic uncertainty and concerns that international demand could drop. The decision came out of an OPEC+ meeting in Vienna, but the extra cuts announced by Saudi Arabia are being done unilaterally. Saudi Arabia says the cuts will last at least a month and could be extended. OPEC+ countries also agreed to extend oil production cuts they announced in April through the end of 2024, reducing the amount of crude they pump into the world market by more than 1 million barrels per day. OPEC+ countries produce about 40% of the world's crude oil.4
Economic Definitions
ISM Manufacturing Index: PMI Surveys track sentiment among purchasing managers at manufacturing, construction and/or services firms. An overall sentiment index is generally calculated from the results of queries on production, orders, inventories, employment, prices, etc.
Initial Jobless Claims: Initial unemployment claims track the number of people who have filed jobless claims for the first time during the specified period with the appropriate government labor office. This number represents an inflow of people receiving unemployment benefits.
Nonfarm Payrolls: This indicator measures the number of employees on business payrolls. It is also sometimes referred to as establishment survey employment to distinguish it from the household survey measure of employment.
Unemployment Rate: The unemployment rate tracks the number of unemployed persons as a percentage of the labor force (the total number of employed plus unemployed). These figures generally come from a household labor force survey.
ISM Services Index: PMI Surveys track sentiment among purchasing managers at manufacturing, construction and/or services firms. An overall sentiment index is generally calculated from the results of queries on production, orders, inventories, employment, prices, etc. Target Audience: supply management professionals Sample Size: 300 individuals Date of Survey: through the month The Services Index is a composite index of four indicators with equal weights: Business Activity, New Orders, Employment and Supplier Deliveries. An index reading above 50% indicates an expansion and below 50% indicates a decline in the non-manufacturing economy. Whereas per Supplier Deliveries Index, above 50% indicates slower deliveries and below 50% indicates faster deliveries.
Job Openings – JOLTS: This concept tracks the number of specific job openings in an economy. Job vacancies generally include either newly created or unoccupied positions (or those that are about to become vacant) where an employer is taking specific actions to fill these positions.
Index Definitions
&P 500: The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
NASDAQ: The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Russell Mid-Cap: Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represents approximately 25% of the total market capitalization of the Russell 1000 Index.
Russell 2000: The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 total market capitalization. The real-time value is calculated with a base value of 135.00 as of December 31, 1986. The end-of-day value is calculated with a base value of 100.00 as of December 29, 1978.
MSCI EAFE: The MSCI EAFE Index is a free-float weighted equity index. The index was developed with a base value of 100 as of December 31, 1969. The MSCI EAFE region covers DM countries in Europe, Australasia, Israel, and the Far East.
MSCI EM: The MSCI EM (Emerging Markets) Index is a free-float weighted equity index that captures large and mid-cap representation across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
Bloomberg Barclays US Agg Bond: The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).
Bloomberg Barclays High Yield Corp: The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate 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. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.
Bloomberg Barclays Global Agg: The Bloomberg Barclays Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.
Bloomberg Barclays Municipal Bond Index: The Bloomberg Barclays U.S. Municipal Index covers the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds.
Disclosures
Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance cannot guarantee future results.
Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect again loss. In general, the bond market is volatile; bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds or high-yield bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.
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1 Data obtained from Bloomberg as of 6/2/2023.
2 Data obtained from Morningstar as of 6/2/2023.
3 The Dollar Is Still King in Europe, and It’s Swaying Interest Rates - WSJ
4 Saudi Arabia cuts oil production again amid economic uncertainty : NPR
