Performance for Week Ending 6/8/18:
The Dow Jones Industrial Average (Dow) gained 2.77%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 1.65%, the Standard & Poor’s 500 Index (S&P 500) rose by 1.62% and the Nasdaq Composite Index (NASDAQ) tacked on 1.21%. Sector breadth was positive with 10 of the 11 of the S&P sector groups finishing higher. The Telecom sector (+3.36%) was the best performer while the Utilities sector (-3.18%) was the worst.
||Closing Price 6/8/2018
||Percentage Change for Week Ending 6/8/2018
||Year-to-Date Percentage Change Through 6/8/2018
*See below for Index Definitions
MARKET OBSERVATIONS: 6/4/2018 – 6/8/2018
The major market indices finished the week solidly higher on optimism surrounding domestic economic growth. Signs of easing trade tensions with China added to the positive tone after China offered to import an extra $70 billion of American goods in an effort to defuse a potential trade war between the world’s two largest economies.
Strap on Your Seatbelts: Despite the solid gains, overall trading activity was on the cautious side likely reflecting some trepidation ahead of the upcoming week, which is setting up to be one of the most important weeks of the year in terms of macro catalysts. This Tuesday, President Trump and North Korean leader Kim Jong-Un are set to meet in Singapore. While nothing earth shattering is expected to evolve, uncertainty going into the meeting could act as a headwind. A best-case scenario would be a cordial meeting that kicks off an ongoing process that eventually paves the way towards more normalized relations. Assuming the meeting is considered a success, it could help push the US and China towards a trade compromise.
Also on Tuesday, the Labor Department will release the closely watched Consumer Price Index (CPI). According to Bloomberg data, economists are forecasting that prices in May rose by a 2.8% year-over-year pace, which would mark the highest level since early 2012. The “core” rate, which excludes food and energy prices, is expected rise by 2.2% y/y. The two-day FOMC meeting also begins on Tuesday and is expected to result in a 25 basis point rate hike at the conclusion on Wednesday afternoon. While a hike is all but a done deal, the focus will be on the tone (hawkish? dovish?) of the after meeting communique and what the forward path looks like (1 or 2 more rate hikes this year?). The tone of Fed Chair Powell’s presser and the updated Summary of Economic Projections (SEP) will also be monitored very closely.
On Thursday, the European Central Bank (ECB) is set to meet (no change expected) although ECB President Draghi could provide some color on tapering plans for its Asset Purchasing Program. Lastly, on Friday the US is expected to release a final list of Chinese imports subject to a 25% tariff with expectations that the tariffs could go into effect over the course of the subsequent weeks. If tariffs are ultimately enacted, China has promised to retaliate.
All in all, a very busy week ahead. Assuming no real surprises emerge, the market may be poised to break out its recent trading range. However, if the Fed indicates a faster pace of rate hikes or the North Korean summit results in increased tensions, a near-term market setback cannot be ruled out - stay tuned.
Market View: While the level of ‘noise’ (tariffs, geopolitics, political uncertainty, etc.) in the marketplace remains elevated, when looking beyond the noise and focusing on the underlying fundamental drivers of equity markets, the macro environment remains supportive. The domestic economy is showing signs of upward momentum, the earnings outlook remains robust, inflation remains relatively tame and while the Fed will continue to gradually tighten monetary policy, interest rates will remain low by historical standards. We also have to remember that higher rates tend to be a byproduct of a better growth outlook and by historical standards, equity markets, more often than not, have done well in a rising rate environment – at least to a point.
Historically bull markets continue until there are growing signs of recession. That is certainly not the case today. The yield curve remains positively sloped and the Leading Economic Indicators Index has been growing at a robust pace. As a firm, we are not forecasting a recession until early 2020. Investors tend to discount the arrival of recession by about seven months, on average, before it actually begins, suggesting the market still has room to advance but may begin to face some headwinds around mid/late next year.
The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.
Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
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.
This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.
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