U.S. Stocks Rally Following Strong Jobs Report while Geopolitical Concerns Linger
Sources: Sources for data in tables: Equity Market and Fixed Income returns are from JP Morgan as of 06/01/18. Rates and Economic Calendar Data from Bloomberg as of 06/05/18. International developed markets measured by the MSCI EAFE Index, emerging markets measured by the MSCI EM Index. Sector performance is measured using GICS methodology.
Global equity markets delivered mixed results in last week’s holiday shortened trading session. In the U.S., the Dow Jones Industrial Average retreated 0.38% while the wider ranging S&P 500 Index gained 0.54%. Internationally, developed and emerging markets posted negative returns of 0.97% and 0.51% respectively as measured by the MSCI EAFE and MSCI EM Indexes. In fixed income, the 10 year U.S. Treasury yields were little changed for the week, closing at 2.89%. It’s worth noting that the Federal Reserve now enters the “quiet period” ahead of next week’s scheduled FOMC meeting on June 12-13, where a 25 Bp hike to the Federal Funds Target Rate seems likely. This would mark the second rate increase of 2018. However, following recent geopolitical events, markets are now pricing in just a 24% chance the Fed raises rates four times in 2018, according to CME Group data. This is down from more than 50% as recently as last week.
Looking back over the course of the prior week, we saw equity market trading revolving again around the topics of politics and trade. Global stocks were sent lower over the weekend due to a “constitutional crisis” in Italy. The Eurozone’s 3rd largest economy experienced significant stock and bond market volatility due to political uncertainty and the potential for another country (with the prior one being Great Britain) to leave the Eurozone.
Volatility spilled over into the U.S. with an apparent flight to safety as investors bought bonds and sold stocks. However, as we’ve seen many times this year, the seemingly resilient equities market experienced a rebound following the declines. Stocks continued to fluctuate mid-week as we received updates out of the White House regarding tariffs for Canada, Mexico, and the EU. U.S. markets rallied to close out the week following the release of a strong U.S. jobs report on Friday. As mentioned earlier, the S&P 500 finished positive for the week and we’re predominately seeing continued momentum to start the new week. The Consumer Discretionary, Consumer Staples, and Technology sectors were leading the way out of the gates on Monday.
The strong jobs report can serve as another reminder that the underlying economic foundation in the U.S. remains relatively strong at this point. However, more short term bouts of volatility can be expected ahead given all of the geopolitical uncertainties that currently exist. As a result, we encourage investors to revisit their portfolios to help ensure that they have the diversification in place to help withstand future bouts of volatility while also being positioned in accordance with their own specific goals and investment timeframe.
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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