https://vimeo.com/544684636 Brad McMillan, Commonwealth’s CIO, recaps the market and economic news for April. It was…
General Market News
- We certainly have experienced some volatility in rates these past few weeks. The 10-year Treasury yield dropped from 1.71 percent to 1.44 percent last week. On Monday, it opened at 1.49 percent, moved quickly to 1.44 percent, and then jumped back to 1.52 percent. The 2-year opened at 1.51 percent, and the 30-year at opened 2.01 percent. With mixed economic numbers, trade uncertainties, and global tensions, volatility is likely to continue in the weeks and months to come.
- On Wednesday, Federal Reserve (Fed) Chair Jerome Powell made his speech from Jackson Hole. He stated that the bank will continue to act as appropriate to sustain the expansion, but he did not commit to an immediate cut. The Boston and Kansas City Fed Bank presidents Eric Rosengren and Esther George continued their dissent against further rate cuts. President Trump tweeted, “my only question is, who is our bigger enemy, Jay Powell or Chairman Xi?”
- U.S. equities fell last week due to escalating trade tensions. China stated it would implement a 5 percent–10 percent tariff on an additional $75 billion of U.S. goods. Friday afternoon closed with President Trump threatening a response to this action.
- Last week’s worst-performing sectors were materials, telecommunications, and energy. Utilities, consumer discretionary, and REITs were among the top-performing sectors.
- Existing home salescame in as expected with month-over-month growth of 2.5 percent, following a 1.7 percent decline in June. Declining mortgage rates during the month helped spur growth in home purchases.
- New home saleswere released on Friday, showing a decline of 12.8 percent month-over-month against expectations for a 0.2 percent increase. While this is a disappointing number, it does follow a period of 7 percent growth, and the new homes market is only a fraction of the size of the existing home sales market.
- The minutes from the Fed’sJuly 31meetingwere released on Wednesday. The Fed showed an upbeat view of the economy, with some concerns about declining business investment and government spending causing a slowdown in gross domestic product in the second half of the year. The Fed’s main concerns going forward were with international trade tensions, which skewed risks to the downside.
|MSCI Emerging Markets||0.38%||–5.93%||3.00%||–4.34%|
|Fixed Income Index||Month-to-Date||Year-to-Date||12-Month|
|U.S. Broad Market||2.37%||8.87%||9.78%|
Source: Morningstar Direct
What to Look Forward To
The week will begin with the release of July’s durable goods orders, which are set to increase by 1.3 percent following a 1.9 percent gain in June. Orders have been volatile this year, so this projected gain for the second month in a row would be welcome. Much of the expected gain is due to increased aircraft orders, as the core durable goods figure, which strips out transportation orders, is expected to show merely 0.1 percent growth.
On Tuesday, the Conference Board Consumer Confidence Indexfor August is set to be released. Confidence is expected to fall to 130 from July’s reading of 135.7. Consumer confidence is largely influenced by equity market performance, so it is not a surprise that economists expect August’s market turbulence to negatively affect confidence.
On Friday, July’s personal incomeand consumer spendingreports are set to be released. Income is expected to show 0.3 percent growth during the month, while spending is set for 0.5 percent growth. These projected results are broadly in line with June’s figures and would echo the strong retail sales report in July. Consumer spending remains one of the bright spots in the economy, so another month of solid income and spending growth would continue the strong trends we’ve seen this year.
We’ll finish out the week with the second and final release of the University of Michigan consumer sentiment surveyfor August. Economists expect the survey to increase from the initial midmonth reading of 92.1 to 92.6 for month-end. Despite the increase, this result would still represent the second-lowest level for the index this year. As with the Conference Board’s index, August’s market volatility is to blame for economists’ lowered expectations.
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.