Weekly Market Commentary May 8, 2017

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Markets shrugged off the near certainty of a Federal Reserve rate hike in June and embraced the polling numbers pointing to Macron’s easy victory on Sunday. The S&P 500 rose 0.6% for the week. Global stocks, represented by the MSCI ACWI, rose 0.9%. The Aggregate U.S. Bond Index surrendered 0.2%. Oil prices continued to retreat. Brent Crude dropped another 5.7% this week.

Economic news was mixed. The most recent inflation data came in weaker than expected. Unemployment claims hit a 17-year low and worker productivity fell in the first quarter. The Federal Reserve left rates unchanged, as expected, and declared the recent slowdown in growth was likely “transitory.” That statement raised expectations that rates will be increased at the June meeting. A solid U.S. employment report on Friday made a June hike a near certainty.

Corporate earnings continue to beat expectations offsetting most of the negative news from the economic data releases. Overseas, China’s manufacturing PMI fell to 50.3 from 51.2 last month, and was below analyst expectations of 51.0. China continues to push rates higher to reign in excessive borrowing. Now that capital flight is receding as an issue, the Chinese seem focused on reducing excess speculation in the property market.

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 leaves key interest rate unchanged amid lackluster economic growth

The Federal Reserve stood pat on interest rates although it signaled a June hike was likely given the resilient U.S. economy and solid job market. The committee noted that the slower growth numbers in the month are ‘transitory’.

U.S. labor market tightening; productivity drops in first quarter

Labor markets have steadily tightened over the last few months and Initial U.S. jobless claims for April continue to fall. However, worker productivity fell in the first quarter, which raises questions regarding inflation and how higher wages might impact corporate profits.

Caixin China manufacturing PMI for April falls to seven-month low of 50.3

In what could be assessed as signs of cooling manufacturing activity, China’s manufacturing PMI dropped to 50.3 in April from 51.2 in March, indicating a slower expansion of activity. The index, however continues to be above the 50 mark which indicated expansion.

U.S. consumer spending flat; inflation pressures subside

U.S. factory activity slowed in April while consumer spending was unchanged in March and inflation dropped 0.1%, the first and largest drop since September 2001. The drop reflected declines in the prices of automobiles and mobile phone services.

Fun Story of the Week

The Oracle of Omaha, Warren Buffett, just hosted his annual shareholder meeting this past weekend. Located in the metropolitan Omaha area, the event is a combination of a party and a massive shopping event, allowing investors and consumers the opportunity to try out Mr. Buffett’s products. Bringing in a crowd from all over the world, attendees spend thousands of dollars just to get a glimpse of legendary investors Warren Buffett and Charlie Munger. For example, Justin O’Kane, an investment manager from Melbourne, Australia, has attended seven previous annual events. Using his vast knowledge of the events happenings, Mr. O’Kane now plans his trips so thoroughly that it includes a 3a.m. wake up time. Citing the importance of planning the event carefully, Mr. O’Kane stated, “If we’re going to come all this way, we want to see their (Buffett and Munger) faces.”


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