Weekly Market Commentary May 30, 2017

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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:

Fed forecasts rate hike ‘soon,’ details plan to trim balance sheet

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.

Accelerating earnings growth soothes U.S. economy fears

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.

OPEC and non-OPEC members agree to extend production cuts for nine months; oil prices slump 4%

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.”


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