Weekly Market Recap May 30, 2017

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1 Last Week: We hope you enjoyed your Memorial Day weekend, and took time to reflect on the many sacrifices that have solidified the freedoms we enjoy today. To all those that have served thanks from the bottom of our hearts! The Dow Jones Industrial Average broke a two week losing streak with a gain of 275 points, or +1.3% o Twenty two of thirty stocks advanced, with the top performers being Goldman Sachs, Coca-Cola, Microsoft, Boeing and Caterpillar, all up over +3.0% o General Electric (-2.1%) led the short list of decliners, followed by Chevron- Texaco, Pfizer, Home Depot and Wal-Mart Dow Utilities were strong, up +2.4% Dow Transports were even stronger, up +3.4%, posting their largest single week gain since early December, 2016 o Investors haven t yet embraced a return to equity markets The S&P 500 joined the positive trend, up +1.4% o The index was up every day during the week, and now has a string of seven consecutive higher closes According to Instinet, the market has been higher two weeks later in eight of ten previous instances where the market was up six days in a row o Utilities, Consumer Staples and Technology all gained over +2.0%, with Industrials next at +1.9% The best performing industry groups were Railroads, Airlines, Toys, Tobacco and Soft Drinks 1

2 o Energy was the leading sector in the red, (-2.2%), followed by Telecom, while Real Estate and Materials were each up less than a percent The lagging industry groups were energy-centric: Oil Equipment & Services, Coal, Oil Equipment & Distribution, Exploration & Production and Oil & Gas Producers Nasdaq had a solid week, up +2.1% Small- and mid-cap indices had trouble keeping pace, with the S&P MidCap gaining only +0.9% while the small cap index gained +1.1% The CBOE Volatility Index (VIX) went deeper into sleep after a brief spike last week, and was down 2.25 to 9.81, the fourth time the index had closed below 10 this month. The last time it recorded single digits was over a decade ago, in December, 2006 The 10-year Treasury yield held steady at 2.24% WTI Crude settled back below $50, down about a buck for the week to $49.40 o As expected, OPEC agreed to limit output until at least March 2018 Gold prices rose again, to $1,265/ounce, reaching the highest level since the November presidential election U.S. Dollar Index was about flat for the week, finishing at o Bitcoin prices have doubled year-to-date, in part from recent ransomware attacks demanding payment in Bitcoin Source: Yardeni European equity markets were mixed, as Germany and France saw nominal declines for the week while London moved ahead +1.0% o Greece (-0.7%) and Italy (-1.2%) went in a different direction than Spain +0.6% and Portugal +1.0% (likely due to increased tourism spending) 2

3 Asian equity markets were mostly to the upside for the week o The Hang Seng gained +1.8%, the Nikkei tacked on +0.5%, and Shanghai moved forward +0.6%, while the Shenzhen declined (-0.8%) o India added +1.9%, while the biggest winner in the region was Seoul +2.9% o Moscow felt the energy woes and declined (-1.4%) Moody s cut its outlook on China s sovereign credit rating from stable to negative, citing rising debt levels, falling foreign currency reserves, and doubts about government reform. We thought the accompanying charts provided some useful context for China s economy President Trump completed his first major foreign trip, visiting the Middle East and attending meetings with the G-7 and NATO o Investigations at home over Russia, a new health care bill, and discussions about tax reform kept the focus away from many of the foreign meetings New forecasts now have a tax bill completed by year end, not August, even though many changes still have not been agreed upon in principle Delays of implementation of the DOL fiduciary regulations were set aside, with the rules now set to become effective on June 9 The new health bill scores well for decreasing the deficit, but leaves millions of people uninsured, according to a report from the Congressional Budget Office A federal appeals court struck down the revised immigration order, leaving the Supreme Court as the last possible appeal 3

4 The week started with yet another bombing, this one in Manchester, England, that killed 22 people, many of whom were children o Britain raised its terror alert level to critical, but over the weekend reduced it back to severe and now has at least 11 suspects in custody o Later in the week, gunfire on a bus carrying Coptic Christians in Egypt resulted in over 20 dead, a second effort targeted on this group in the last two months In company news: o Glencore made a play for Bunge, looking to expand its reach into grain trading o Ford replaced its CEO The Federal Reserve released the minutes from its last meeting, confirming the likelihood of another rate increase at the June meeting o Minneapolis Fed President Neel Kashkari said recent soft inflation reports are concerning, and that unemployment likely can move lower still without sparking wage inflation. He s the second dove in as many weeks to imply a more-gradual pace for future Fed rate hikes The European Central Bank warned about concerning levels of home price appreciation in European capital cities, saying Exuberant house price developments in certain regions could, in principle, threaten the stability of financial institutions with mortgage exposures concentrated in those regions. Amsterdam, Berlin, Paris, and Vienna were singled out as among the areas of concern 4

5 U.S. new home sales for April surprised to the downside, with sales falling (-11.4%) compared to expectations for a nominal (-1.8%) decline, with the sales decline being higher in the West, and lowest in the South Durable goods orders came in slightly better than expected, decreasing by only (-0.7%) when a decline of (-1.5%) was expected, with the three-month rolling number showing orders up +1.0% US GDP for 1Q was revised higher to a +1.2% quarter over quarter rate, compared to original reports of +0.7%, and expectations for 2Q see GDP bouncing higher 5

6 This Week: Many markets in Asia were closed for holidays o The Nikkei finished flat with little intramarket movement European markets were trading generally lower, with London and Frankfurt down less than one-half of a percent The U.S. markets look to open lower o The dollar is trading lower, as are metals and crude The America s Cup kicks into high gear in Bermuda, as Oracle founder Larry Ellison defends his crown Quarterly earnings season nears its end, with 1Q earnings for the S&P up 13.6%, the fastest pace of growth in six years select companies reporting this week: o Tuesday: American Woodmark, Frontline o Wednesday: Analog Devices, Hewlett Packard Enterprise, J Jill, Michael Kors, Palo Alto Networks, Vera Bradley o Thursday: Broadcom, Ciena, Cooper, Dollar General, Express, Five Below, Lululemon, Mobileye, Restoration Hardware, VMWare and Workday Economic data reports: o Tuesday sees Personal Income, with expectations for an increase of +0.4% o Wednesday gives us Chicago PMI, expected at 55.0 o Thursday always provides jobless claims, and also ISM Manufacturing (54.0 expected), ADP report (150k expected, construction spending and auto sales o Friday brings us nonfarm payrolls (150k) expected) and the unemployment rate (4.5% expected) as well as information on trade balances As always, thanks very much for your interest and support. Farley Shiner, CFA Managing Director 6

7 Opinions contained in the preceding commentary reflect those of Sterling Capital Management LLC, and not those of BB&T Corporation or its executives. The stated opinions are for general information only and are not meant to be predictions or an offer of individual or personalized investment advice. They also are not intended as an offer or solicitation with respect to the purchase or sale of any security. This information and these opinions are subject to change without notice. Any type of investing involves risk and there are no guarantees. Sterling Capital Management LLC does not assume liability for any loss which may result from the reliance by any person upon any such information or opinions. Investment advisory services are available through Sterling Capital Management LLC, a separate subsidiary of BB&T Corporation. Sterling Capital Management LLC manages customized investment portfolios, provides asset allocation analysis and offers other investment-related services to affluent individuals and businesses. Securities and other investments held in investment management or investment advisory accounts at Sterling Capital Management LLC are not deposits or other obligations of BB&T Corporation, Branch Banking and Trust Company or any affiliate, are not guaranteed by Branch Banking and Trust Company or any other bank, are not insured by the FDIC or any other government agency, and are subject to investment risk, including possible loss of principal invested. 7