Markets remained almost flat through the week as economic releases failed to trigger any significant reaction. The S&P 500 slid 0.4% while the MSCI All Country World Index (ACWI) eked out a 0.1% gain. The Aggregate U.S. Bond Index climbed 0.2%. Volatility remains historically low and investor complacency remains a risk.
Consumer spending rebounded. Retail sales rose 0.4% in April and previous months were revised higher. Over the last year, retail sales are up a robust 4.5%. Inflation remains a concern. U.S. producer prices showed a broad-based gain in April as a sign of building inflation pressures. Consumer prices were tamer, rising 0.2% in April and 2.2% over the last twelve months.
After sharp declines in previous weeks, oil prices were up by more than 3% as inventories declined by 3 million barrels more than expected. Additionally, prices got a boost from the expected extension of production cuts for another six months from OPEC and other oil producers.
After the Macron victory in France last week, investor attention moved to Asia. Moon Jae-in won the South Korean presidency. Moon favors a more open policy with North Korea. Korean markets rallied on the news. While most emerging markets are doing quite well, China’s local market continues to struggle with efforts by the central bank to reign in excessive risk-taking.
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:
New applications for U.S. jobless benefits unexpectedly fell last week while producer prices rebounded strongly in April, pointing to a tightening labor market and rising inflation. Higher inflation and employment will likely trigger another rate hike in June.
U.S. crude stockpiles had the biggest drop of the year, declining 5 million barrels and somewhat alleviating concerns of a prolonged supply glut due to revival of shale production.
The major indices are lingering around the same levels seen at the end of the month. Some investors are reluctant to make any significant moves as they continue to wait for details on the Trump Administration’s tax plan.
The Chinese central bank continues to allow short-term rates to rise. The changes are designed to reduce excessive lending and the use of potentially risky investment vehicles as a funding mechanism instead of bank debt. The moves have pushed rates higher and domestic stock exchanges lower.
Fun Story of the Week
Buyers of new luxury cars are losing the technological war with their own cars. Automakers continue to load up their cars with technology solutions that baffle drivers who aren’t big technology users. The systems also regularly experience bugs. One owner shut off his navigation system after it told him to turn left on red into a pond.
Auto dealers are responding with the tried and true combination of education and food. A Toyota dealership in Maine offers a 90-minute training class along with free sandwiches to train new-car buyers on the technology advantages of buying a new car.
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.