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Weekly Update – June 07, 2019

  • Stocks rallied into a choppy week; the S&P 500 saw its best weekly gain of the year. Drivers included oversold conditions and expectations that economic slowing would prompt a rate cut from the Federal Reserve.
  • Earlier, President Trump had disrupted the markets by suddenly escalating trade frictions with China, then weaponizing tariffs against Mexico to deter immigration. With the escalation spilling over into the economy, Fed Chairman Jerome Powell asserted the Fed “will act as appropriate to sustain the expansion,” proffering a rate cut if warranted by data signals. May’s weak job growth sent such a signal; under normal circumstances this would have caused a stock-market pullback, but with a rate cut on the table it triggered a rally.
  • Still, recession fears drove a world-wide rally in the bond markets. The futures markets showed investors expect more than one Fed rate cut this year. Bond yields fell as the U.S. Treasury yield curve remained inverted; the ten-year note yielded 2.08%, less than the one-month T-bill yield of 2.26%. The U.S. dollar fell against a basket of currencies. Gold prices rose, as did oil prices.
  • The Labor Department reported that the U.S. economy added 75,000 jobs in May, a pullback even as it marked 104 straight months of gains. Average hourly wages rose 3.1% year-over-year, a solid but not inflationary increase. Unemployment remained at 3.6%.
  • ISM manufacturing declined 0.7 versus April, to 52.1 in May, still in expansion but growing less rapidly. Commentary focused on tariff impacts — higher costs, shifting supply-chain strategies — though some respondents mentioned continuing strong business conditions. May Markit manufacturing PMI at 50.5 was a touch below consensus but its lowest level since September 2009.
  • The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) fell from 53.1 in April to 49.4 in May, the lowest level in nearly three years.
  • The Federal Reserve Flow of Funds report showed that U.S. household net worth grew 4.5% in 1Q19 to $108.6 trillion, representing the largest quarterly gain in 15 years and erasing the 3.7% decline of 4Q18. The increase was mostly due to gains in the value of household equity holdings.

CPWM Weekly Market Monitor (2019.06.07)

 

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