Strong Retail Sales Numbers May Push U.S. GDP Above 3% in the Second Quarter
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 05/18/18. Rates and Economic Calendar Data from Bloomberg as of 05/22/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Developed markets retreated slightly for the week, after seeing gains well above two percent throughout the first 11 days of May. This past week, although faintly negative from a return perspective, was largely dominated by positive news such as U.S. economic activity data and a potential resolution to on-going trade issues between the United States and China. Nonetheless, the S&P 500 Index lost 0.49%, while the Russell Midcap Index gained 0.04% and the Russell 2000 Index, a measure of the Nation’s smallest publically traded firms, gained 1.27%. On the international front, developed markets fell 0.47% last week while emerging markets fell 2.26%. Fixed income markets took notice of the promising economic data previously mentioned, as the yield on the 10 year U.S. Treasury settled at 3.07%, a level that hasn’t been reached since 2011. The U.S. Dollar followed suit, increasing by 1.26% over the course of the week, and nearing its 2018 high.
As mentioned earlier, the major headlines that dominated this past week’s news cycle were undoubtedly promising in our opinion. Reported figures for U.S retail sales and industrial production during the month of April surprised to the upside in a meaningful way. Out-performance in retail sales, in particular, reinvigorated our confidence in the strength of the U.S. consumer, following a series of reports that indicated the potential for deceleration in consumer spending. This likely indicates that the typical U.S. consumer is beginning to loosen their purse strings as they start to feel the benefits of U.S. income tax cuts. Moreover, the strength of the reported retail sales figures signal that U.S. GDP growth for the second quarter should likely come in above 3%.
Favorable economic news wasn’t the only noteworthy happening over the past week, as Chinese and U.S. diplomats agreed in principal to bring an end to the on-going trade negotiations between the two nations. Although the specifics haven’t been fully ironed out as of yet, and no concrete agreement currently exists, it appears that the hard-line stance taken by U.S. officials ultimately worked out, as China now sounds willing to make significant concessions. While both sides insist that it was always a “trade dispute”, rather than a “trade war”, investors can breathe easy that whatever it was is coming to an end.
Although markets have absorbed a 10-year U.S. Treasury Yield near its highest level in seven years with relative ease, and economic activity continues to trend in a positive direction, potential bouts of future volatility still remain. With that said, portfolio diversification becomes increasingly important in times of heightened uncertainty, and we encourage investors to revisit the diversification that may, or may not, be in place within their existing portfolios. If you would like to learn more about how we are helping clients invest dynamically and consistently with their own goals, timeframe and tolerance for risk, please do not hesitate to speak with your Hennion & Walsh Financial Advisor.
Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion & Walsh cannot guarantee the accuracy of said information and cannot be held liable. This information is provided for informational purposes only and is not a solicitation to buy or sell any of the asset classes or sectors discussed.
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