Stocks set new 52-week highs this week. The S&P 500 and the global MSCI ACWI both reached new highs on Thursday, before declining slightly on Friday. For the week, the S&P 500 rose 1.4%, the MSCI ACWI climbed 1.1% and the Bloomberg BarCap U.S. Bond Aggregate remained unchanged.
Investors shrugged off a deadly terror attack in England and instead focused on the Federal Reserve minutes and corporate earnings. The minutes from the most recent Federal Reserve meeting reassured markets by pointing to a slower pace of rate increases and gradual unwinding of its balance sheet. Corporate earnings remain positive and strong results from electronics retailer Best Buy supported markets.
The markets also got a boost from the extension of production cuts by OPEC and lower-than-expected crude oil inventories. Oil prices, however, plunged below $50 on doubts about the ability of these cuts to bring balance to the oil market. U.S. existing-home sales declined 2.3% sequentially in April but were up 1.6% year over year. The anemic first-quarter GDP gain of 0.7% was revised to a more robust 1.2%.[i]
Internationally, Moody’s downgraded China debt from Aa3 to A1 based on eroding financial strength. The market reaction was muted and Chinese stocks rallied sharply this week.
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 latest FOMC minutes hint at another rate hike in the following month but cast doubts on further increases this year as the committee begins the gradual unwinding its $4.5 trillion balance sheet. The minutes noted that the rate increase would depend on the economic conditions and government fiscal policies.
In Q1, earnings at U.S. companies grew at the fastest pace in nearly six years, providing healthy support to an eight-year bull market. Per FactSet, aggregate earnings of the S&P 500 index are on track to grow 13.9% on a year over year basis, the highest since Q3 2011.
The Organization of the Petroleum Exporting Countries extended production caps to March 2018. The oil exporting cartel is continuing its attempt to reign in the global supply glut and boost oil prices. Oil prices, however, fell on the news as markets expected deeper cuts to ensure the action was sustainable. The previous six-month cut did not result in higher prices, but it did create a floor at about $50 per barrel.
Fun Story of the Week
Colleges must ask every year: who should we find to give the commencement speech? In Harvard’s case, the University sometimes turns to people who attended college there, but never made it to graduation. Like Bill Gates before him, Mark Zuckerberg never graduated from Harvard. Both have given commencement addresses and received honorary degrees as substitutes for the real ones they never received. Matt Damon admitted in a commencement address at MIT that he had sat in on Harvard’s commencement after studying there without getting a degree. He quipped, “So yes, today, for the second time in my life, I am fake graduating from a college in my hometown.”
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.