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15 June, 2019 Market Commentary

U.S. Stocks Higher as Bond Yields Continue to Fall


Market Commentary for the week ending June 15th, 2019

Summary

  • U.S. stocks once again post some of the strongest gains in a diversified portfolio
  • The yield on U.S. 10-Year Treasury Bonds approaches 2.0% on concerns of a slowing economy
  • Economic data came in strong including a better than expected report on Industrial Production

 

Market Performance Summary

Source: www.YCharts.com

Notable Market Headlines

U.S. stocks continued their 2019 march higher, two weeks in a row, after a very disappointing month of May. At the same time, bond prices are moving higher and pushing yields lower on heightened concerns by investors that the economy is slowing and the Federal Reserve will lower interest rates.

At the close of the week U.S. large stocks were up +0.6% as measured by the S&P 500. The Dow Jones Industrials lagged with a gain of +0.4% while the tech-heavy NASDAQ Composite outperformed rising +0.7%. Large stocks are now up +15.7% for 2019 and off their April 30th record highs by just -2.0%. Small U.S. stocks also gained +0.6% but are lagging by a small margin year-to-date up +13.3%.

International stocks were lower this week with both developed and emerging markets lower. Developed countries declined by -0.6% with one of the worst performers being Spain down -1.5%. Emerging markets were off just -0.2% for the week. Year-to-date international markets continue to lag well behind the U.S. with developed country stocks up +10.9% and emerging markets up only +5.2%.

Real estate stocks were the standout performers in the alternatives space up +0.7% for the week and now +17.8% for the year. These have been some of the best performers in 2019. Gold was unchanged for the week while Commodities slipped fractionally down -0.1%.

Rising bond prices and falling yields have really been a big part of the 2019 market story. Bonds gained a small +0.1% this week and are higher by +4.0% for the year. The benchmark U.S. 10-Year Treasury Bond Yield fell to just 2.080% this week. As illustrated in the accompanying graph, this yield peaked above 3.2% in late 2018 and has persistently fallen since.

Source: www.YahooFinance.com

Stock Highlights

Facebook (FB), the social media giant, is clearly in the crosshairs of a variety of regulatory agencies and governments as well as facing concerns from its customers and users. Unrelated, this week it was reported the company is getting traction with its project to develop a cryptocurrency and has several other big companies involved in the project. The net effect of all the news has been positive for shareholders with the stock among the best performers of the week gaining +4.6% and up +38.3% year-to-date.

Allergan (AGN), a $15 billion in revenue specialty pharmaceutical manufacturer, had the worst performing stock among the S&P 500 this week. Unfortunately for its shareholders, stories of a declining stock price have been repetitive as illustrated in the accompanying graph. This week the stock fell another -8.8% and is down more than -65% since hitting its all-time high in mid-2015.

Source: www.YahooFinance.com

Salesforce.com (CRM), a provider of enterprise cloud computing solutions including its customer relationship management platform, announced a $15.3 billion acquisition of Tableau Software (DATA). This would be Salesforce’s biggest acquisition to date with the goal of providing its customers the ability to better analyze its data via Tableau’s systems. The market did not react well to the announcement sending its stock down -7.0% for the week but it is still higher for 2019 by +9.5%.

In spite of both the overall technology sector and the NASDAQ Composite being higher for the week, several big tech stocks were lower including some that have been among the highest fliers year-to-date as illustrated in the accompanying table.

Source: www.YCharts.com

Economic Indicator - Reported

Retail sales for the most recent month came in relatively strong up +0.5% but this was below economists’ forecast of +0.7%. Many categories showed solid gains including auto sales which make up about 20% of total retail sales. In addition to this relatively strong report, the prior month’s number was revised sharply higher from a previously reported decline of -0.2% to a gain of +0.3%. Some investors are speculating that all of this could give the Federal Reserve reason to delay lowering interest rates.

The Consumer Price Index (CPI), a barometer of retail inflation, shows continued slow growth in prices up just +0.1% in the most recent month helped by both falling gasoline and used-car prices. Even when factoring out the volatile food and energy sectors the gain was still just +0.1%. The year-over-year change in prices has been just +1.8%. The Produce Price Index (PPI), a measure of wholesale prices, also was up just +0.1% for the month.

Industrial Production rose more than forecast up +0.4% in May as compared to an equal sized drop the prior month. An increase in auto production and jump in the demand on utilities contributed to the month’s gain.

The University of Michigan’s Consumer Sentiment slipped from 100.0 to 97.9 in the most recent month.

Economic Indicators – Upcoming

The following economic data is expected in the coming week:

  • Housing Starts are expected to have remained steady from the prior month at 1.24 million annually
  • Existing Home Sales are forecast to have improved by 1.2% in the most recent month

Contact Mark A. Patton :