Stocks Advance, Economy Softens
WEEKLY UPDATE - JUNE 5, 2017
Last week, the S&P 500, Dow, and NASDAQ closed at all-time record highs.[1] The S&P 500 rose 0.96%, the Dow gained 0.6%, and the NASDAQ grew by 1.54%.[2] Meanwhile, the MSCI EAFE gained 1.64% for the week.[3]  

Despite strong equity markets, bond yields dropped to their lowest point in the year. [4] The drop in yield caused by rising bond prices, combined with soft employment numbers and low wage growth, could suggest a slowing economy or a tightening labor market. [5]
While the U.S. equity markets advanced to new highs and bond prices rose, other markets were mixed for the week. Pending home sales dropped 1.3% in April, a second straight month of decline. [6] Oil fell to $47.66 a barrel, the dollar dropped to a seven-month low against the euro, and gold gained 0.8% closing at $1,280.20. [7] 

Additionally, soft employment numbers and flat wages could lead to a disappointing Q2 Gross Domestic Product (GDP). With an eye on dropping inflation, the Fed will have to decide whether to still raise interest rates. [8]

Mixed Job Numbers and Slow Wage Growth 

May's job growth reported an anemic 138,000, well below the expected 185,000. At the same time, average hourly wages increased on a year-over-year basis by only 2.5%. Moreover, the revisions to March and April's payroll numbers fell by 66,000 jobs. [9] The economy is currently averaging 162,000 new jobs per month for the year - again, well below 2016's 187,000 average. [10]

Despite the unemployment rate falling to 4.3%, the lowest it's been in over 15 years, the employment-to-population ratio also fell. Still, the data confirms that demand for experienced and skilled workers exists, while the supply is falling. [11] 

Fed Will Discuss Raising Interest Rates

On June 14, the Fed FOMC will meet to determine if an interest rate increase is in order. [12] Despite the soft employment numbers and an inflation rate below the Fed's target of 2%, traders still believe there is a nearly 88% chance that the Fed will raise rates in June. [13] However, the market consensus currently suggests only a roughly 50/50 chance for another rate increase before the end of the year. [14]

International News and Looking Ahead

Manufacturing in China has posted strong returns. Both the manufacturing and non-manufacturing PMIs reported gains above 50. The numbers suggest that China is on track to reach its targeted 6.5% growth for the year. [15] This matters because China is the world's second largest economy at $11 trillion GDP for 2017. [16]

Other developments in the international arena could influence markets going forward. Reaction to President Trump's decision to leave the Paris Climate Accord could adversely affect American products in the international markets. The landmark decision also runs the risk of hurting U.S. tech and alternative energy companies. [17]

We will continue to follow developing international and national news as they move the markets. As always, if you have questions about how these events may affect your finances, please contact us. We are here to help you remain informed and in control of your financial future.

ECONOMIC CALENDAR
Monday: Factory Orders, ISM Non-Manufacturing Index
Tuesday: JOLTS (Job Openings and Labor Turnover Survey)
Thursday: Jobless Claims
 


Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5- year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on  Morningstar.com  and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.


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Diversification does not guarantee profit nor is it guaranteed to protect assets.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies. 

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia and Southeast Asia. 

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

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