Headline CPI for June came in at 1.6%, down from 1.9% the previous month. Fed’s chair Yellen reiterated her confidence about the U.S. economy, but noted that the committee, “…stands ready to adjust policy if it appears the inflation undershoot appears consistent.” The less hawkish tone sent the U.S. equity markets higher. The S&P 500 climbed 1.4%. Global stocks, represented by the MSCI ACWI, soared 2.1% and the Bloomberg BarCap U.S. Aggregate Bond Index rose 0.4%.
Among the key economic releases last week, the JOLTs report revealed the about 429,000 people were hired in May, marking the biggest increase since March 2004. Other data points were lower than expected. Inflation, and retail sales both produced fairly weak numbers that were below moderate expectations.
While the economy is still growing, based on last week’s manufacturing and service PMIs and the recent JOLTs report, the pace has decelerated. The Q2 earnings season that started on Friday will be watched keenly as investors look for evidence of sustainable economic growth.
What are we reading?
Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links:
Two key data points released Friday morning showed weaker than expected growth. Monthly prices were unchanged and the annual rate of inflation increased by only 1.6% after rising 1.9% in May. Expectations were for a monthly increase of 0.2%. Retail sales also missed expectations, dropping 0.2% and falling for the second straight month. An increase of 0.1% was expected. Both numbers point to a modest slowdown in the economy.
In her testimony on Capitol Hill, Yellen signaled that the Fed would take a cautious approach to tightening policy in the face of an uncertain inflation outlook. She said the Fed would continue to raise interest rates gradually, though it would change plans if inflation weakness persisted. Her testimony likely indicates the Fed won’t raise rates in September. Investors cheered Yellen’s dovish tone.
About two dozen companies have reported earnings for the second quarter. Estimated 78% of them have beaten on EPS, 78% have beaten on sales and 70% have beaten on both. Earnings so far are up nearly 12 percent from the second quarter of last year. While earnings are important, extra importance is being placed on revenues in the slow-growing global economy.
Fun Story of the Week
Western style weddings are all the rage in China. Best men sharing memories, tuxedos, first dances and bouquet tosses are a steeper learning curve to many Chinese wedding parties than learning how to use chopsticks is for a multi-generational Midwesterner.
In steps the wedding coordinator to save the day. Earning as much as $2,500 a wedding, Chinese wedding coordinators organize the ceremony, encourage nervous best men, cajole hesitant single women to catch flowers and act as entertainment host for the wedding. No one would call it easy. According to one wedding coordinator, “’It’s a hard line of work if you don’t believe in love.”
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of CWM, LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large and mid-cap representation across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.