Strong corporate earnings and the bounce from French elections the previous weekend pushed global markets higher. The S&P 500 climbed 1.5% for the week. The MSCI All Country World Index (ACWI), which includes U.S. and international stock markets, rose 1.9%, and the Bloomberg U.S. Aggregate Bond Index slid 0.2%. Oil prices dropped to monthly lows amid fears that U.S. shale production is rebounding too quickly.
U.S. first quarter GDP rose an anemic 0.7% as consumers reduced spending on big ticket items and spent less on home heating during the warm winter.
As part of its efforts to boost growth, the Trump administration outlined an ambitious tax reform proposal that lowers corporate rates dramatically and drops individual rates as well. Tax reform is one of the lynchpins of recent gains in equities and is ultimately positive for the U.S. corporates and businesses even if the cut does not settle at the proposed 15% rate. Internationally, both ECB and BOJ kept their base rates and stimulus plans steady.
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:
The weak first quarter GDP number elicited a number of responses. The average forecast was only 1.0%, but the data underperformed the already low expectations. Some cited very weak consumer spending as the major cause. Others pointed out that the seasonal adjustment factors seem to understate growth in the first quarter and growth consistently bounces back in the other three quarters.
The White House released its one-page outline for the much-anticipated tax plan. Trump administration has proposed cutting corporate rates from 35% to 15% to incentivize American companies to keep/move their production back home. For individuals, the new schedule proposes three brackets of 35%, 25% and 10%.
The Central Banks of Japan and Europe chose to stand pat on interest rates and kept their stimulus plans intact. Mario Draghi reiterated the bank’s commitment to keeping or even increasing the stimulus program as long as inflation remained below the ECB’s 2% target. BOJ is expected continue QE for even longer as the bank seeks to get the economy back towards its 2% inflation target.
Oil prices have come under pressure in recent weeks given the sustained supply glut due to U.S. production. More recently, Libya restarted two key oilfields further adding to the inventory buildup concerns. OPEC is scheduled to decide on whether to extend its production cuts at its meeting on May 25 in Vienna.
Fun Story of the Week
As people around the world have shown, eating healthy has become a favorite trend amongst all generations. As of late, markets have started to change in order to satisfy this need for improved nutrition (see our fun story from commentary on 4/3). Boasting the advertisement “free meat”, co-owners of Herbivorous Butcher in Minneapolis, Aubry and Kale Walch, were some of the first to take advantage of this trend. Offering meat-free “meats” like venison, bologna and pepperoni, the main ingredients in these products are yams and beets. While their advertising may have disappointed some, Ms. Walch feels that the venture was particularly successful. ‘“So many people just saw the words free meat.” Ms. Walch recalls that they rushed over to try samples—with some thinking meat was being given away and wondering whether the vital wheat gluten jerky was actually venison. “We’re getting the last laugh now.” If one of these “butcher shops” comes to your town, will you be willing to try the beet burger?
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 with 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.