Market Commentary - Week Ending 6/9/2018
- U.S. stocks rallied while the rest of the world generally lagged behind
- Brazil and other international markets have fallen into bear market territory
- Inflation reports this week are expected to show continued moderately higher prices
Market Performance Summary
Source: S&P Compustat, www.yahoo.com/finance for Commodities
Notable Market Headlines
U.S. stocks rallied this week with the stocks leading the rally being very different than those that have done so for most of the year. Technology stocks have been the market’s leaders by a longshot year-to-date but this week only gained +0.4% while the Consumer Goods sector, one of the worst performing for the year down -6.6%, jumped +2.9% this week.
In spite of the lagging performance of technology stocks, the NASDAQ Composite hit an all-time record high this week. This was also the case for the Russell 2000, the index for small U.S. stocks, but, as the accompany graph shows, this was not the case for the Dow Industrials or the S&P 500, both measures of performance for large U.S. stocks, which remain meaningfully off their January highs.
Source: S&P Comustat
At the close of the week U.S. large stocks were higher by +1.7% and are higher year-to-date by +4.2%. Small U.S. stocks were right behind large for the week with a gain +1.6% and higher year-to-date by a strong +9.2%.
International markets overall lagged meaningfully behind U.S. stocks. Developed markets, on average, gained +0.6% which pushed these markets back into positive territory for the year by just a fraction of a percent. Multiple developed markets have fallen into and remain in correction territory, off -10% or more from their highs including Germany down -10.2%, Spain off -13.3%, and Italy lower by -14.1%.
International emerging markets were unchanged for the week and remain lower year-to-date by -1.7%. The unchanged performance for the week though does not tell the entire story. Brazil’s market was down -4.7% for the week as the country continues to face political and economic challenges. This market is off its January high by -28.7%. On the other hand, China, the largest of the emerging markets, gained +2.0% for the week but is still -10.7% off its highs in January.
The rally in the oil markets has slowed resulting in the commodities index being flat for the week but still higher by +7.6% in 2018. Gold has seen little movement recently, up +0.4% for the week but lower still year-to-date by -0.5%. Real estate has staged a remarkable recovery from a sharp selloff earlier in the year gaining another +1.4% this week.
Bond prices declined as yields inched higher. Reports on inflation in the upcoming week could move bond prices as investor try to figure out what the Federal Reserve’s longer term plan is for interest rates.
Twitter (TWTR), one of the most popular social media platforms, was added to the S&P 500 this week. Investors were enthused by this announcement with the stock gaining +12.4% for the week. This comes at a time when the stock is on a big run higher but that’s certainly not always been the case.
Twitter went public in late 2013 and the stock immediately jumped from the low $40’s to $70. It then began a long slide lower bottoming in 2016 at $14. It’s since recovered a great deal of those losses and is back above $41. As illustrated in the accompanying graph, the company is struggling to grow sales so we’ll see how long investor continue to push this stock higher.
Source: S&P Compustat
Tesla (TSLA), the popular electric car company, held its annual shareholder meeting this week. Comments from its Chairman and CEO Elon Musk were well-received by investors and the stocks rallied +8.9% for the week. It was not all good news though as concerns remain whether or not they can hit their production goals and, unrelated, some shareholders filed a lawsuit regarding Musk’s very large compensation package. This company frequently makes headlines and, I’m guessing, investors can continue to expect this stock to be very volatile.
Under Armour (UAA), a sporting apparel company, was the best performing stock in the S&P 500 this week gaining +13.8%. Two other consumer stocks were right behind Under Armour, Kohl’s (KSS) and Macy’s (M) gaining +13.7 and 12.1% respectively, as this group has recently captured the attention of the bulls on Wall Street. As the accompany graph shows the rally in Under Armour’s stock is much welcomed for long-term investors as it is recovering from a massive decline from 2015 – 2017.
LAM Research (LRCX), a maker of semiconductor equipment, was the worst performing technology stock in the S&P 500 this week as all technology stocks lagged behind the overall market. This stock fell following a research note by one Wall Street analyst saying the industry is experiencing some weakness due to production delays at Samsung. For the week the stock was off -7.2% but is higher year-to-date by +2.2%.
Nektar Therapeutics (NKTR), a biopharmaceutical stock featured in last week’s blog, collapsed -40.1% this week after being higher last week by +13.0%. The company announced some disappointing test results for one of its cancer treatments. Volatility is nothing new for this stocks as the risks in the industry are very high with the potential rewards being extreme.
Economic Indicators – Upcoming
May inflation data will be reported with Consumer Price Index (CPI), the measure of retail inflation, and the Produce Price Index (PPI), the measure of wholesale inflation, expected to show continuations of recent trends. The CPI is expected to increase by +0.2%, the same as the month before, resulting in a +2.8% year-over-year change. The PPI is expected a little higher at +0.3% but, when excluding volatile food and energy, is estimated at +0.2%.
Retail sales for May are expected strong at +0.4%. Economists are clearly not agreeing on this forecast with the range of estimates from +0.1% to +0.6%. Excluding auto sales, which have been somewhat weak, the average estimate is even higher at +0.5%.
The forecasts by economists for Industrials Production growth in May is a rise of just +0.1%. Again, there is a wide range of forecasts from different economists ranging from -0.6% to +0.5%. The manufacturing component of this report, the largest of the three, is expected to be weak.
The Federal Reserve releases economic forecasts 4 times a year with a report expected this week. Normally these forecasts include estimates of GDP growth, inflation, employment data, and more.