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Market Commentary for the week ending June 8th, 2019

Summary

  • Stocks around the world rallied with U.S. markets leading the way
  • Employment growth shows signs of slowing with the May report coming in well below forecasts
  • Upcoming reports are expected to show now meaningful signs of inflation

 

Market Performance Summary

Source: www.YCharts.com

Notable Market Headlines

U.S. stocks posted one of their biggest weekly gains of the year in spite of continued signs the economy may be slowing. So far it appears that a slowing economy has been good for stocks as investors anticipate the Federal Reserve may lower interest rates.

At the closing bell on Friday U.S. large stocks, as measured by the S&P 500, gained a very impressive +4.5%, along with the Dow Jones Industrials rallying +4.7% of +1,169 points. The NASDAQ Composite lagged behind a bit with a gain of +3.9%. Small U.S. stocks also did well but lagged behind large stocks gaining +3.4%. Year-to-date large stocks are higher by +15.1 and small stocks by +12.7%. This week’s surge higher wipes away a substantial chunk of the May losses leaving large U.S. stocks only -2.5% below record highs reached the end of April.

The best performing sector for the week was Basic Materials led by paint-giant Sherwin-Williams (SHW) up +13.0%. Technology stocks were the runner up gaining +6.0% for the week and now higher by +22.9% year-to-date. Contrary to many investors’ expectations though it was not the typical names leading the charge. For example, both Facebook (FB) and Google’s parent Alphabet (GOOG), two of the popular “FANG” stocks, actually lost value as they deal with pressures in Washington and the possibility of significantly more regulation. As the accompanying table shows the biggest technology stock winners of the week were not the mega-sized tech companies.

Source: www.YCharts.com

International stocks were higher for the week but many markets’ gains were nowhere near those in the U.S. Developed country markets did the best with a gain of +3.4% with some of the biggest gains in France and Italy up +4.5% and +4.8% respectively. Emerging markets did not see near the same gains up an average of only +1.2%. The most notable laggard was China’s market gaining just a fraction up +0.4%.

The non-traditional asset classes also posted weekly gains but well shy of equities. Real Estate stocks were higher by +2.3%, gold gained +2.6%, and commodities inched higher by just +0.2%.

Bonds also rallied +0.4% for the week, now higher by +4.0% year-to-date, pushing yields lower as investors appear to be anticipating the Federal Reserve lowering rates.

Stock Highlights

Campbell Soup (CPB), the maker of soups and other food products, reported quarterly results that were below year ago numbers but well above Wall Street expectations. Earnings per share came in at $0.56, below the $0.70 number a year ago but well above estimates of $0.46. Revenue missed estimates though coming it at $2.18 billion. As the accompanying graph shows the company has struggled with revenue growth but did make a noticeable improvement in 2018. Investors were pleased with this week’s report sending the stock higher by +18.6%.

Source: www.YCharts.com

Advanced Micro Devices (AMD), a manufacturer of company chips, has delivered a wild ride for investors during the past year as the accompany graph shows. The stock surged in 2018 nearly tripling reaching a high in early September. It then fell off a cliff losing nearly half its value in just 6 weeks. It sputtered along through mid-December and has since surged again, including an +18.2% jump this week, and is now just fractionally off its 2018 high.

Source: www.YahooFinance.com

Alphabet, Inc. (GOOG), the parent company of search giant Google, had a disappointing week in the market given the overall market rally and other technology stocks moving sharply higher. It is being reported that the company will face a far-reaching probe by the Department of Justice that could take as long as 5 years to resolve. The stock fell -3.5% for the week and is now down -19.5% from its April month-end all-time high and up just +2.2% for 2019.

Economic Indicator - Reported

The U.S. Employment Report for May showed a much lower than expected 75,000 new jobs added during the month. This compares to an estimate of 185,000 and 224,000 the prior month. In addition to the week May number, both March and April’s reports were lowered by a combined 75,000. The unemployment rate remained unchanged at a very low 3.6% while average hourly earnings were up +3.1% but slightly lower the expectations. All of this fuels concerns of a slowing economy and with investors now thinking the Federal Reserve may lower interest rates in the relatively near future.

Factory Orders, orders placed for new purchases from manufacturers, were down -0.8% for the most recent but higher by +0.3% when excluding the volatile transportation sector. The general thinking is that these lower orders are due to a slowing economy combined with large inventories that are being worked off. These numbers were both generally as expected but lower compared to the prior month.

Vehicle sales were strong in May coming in at an annualized rate of 17.3 million as compared to 16.4 million the month before.

Economic Indicators – Upcoming

The following economic data is expected in the coming week:

  • Retail Sales are expected to have fallen -0.2% in the most recent month.
  • The Consumer Price Index (CPI) is forecast to have risen +0.3% while the Producer Prices Index (PPI) is expected higher by +0.2%.

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