Monthly Market Commentary

Transcription

1 Monthly Market Commentary Dan Wanstreet, CFA - Senior Advice and Portfolio Specialist June 2018 Recap U.S. equities experienced mixed June performance as investors weighed positive U.S. economic fundamentals against lingering trade concerns. Stocks started the month on a strong footing, but that momentum was upended as heightened rhetoric from leaders in the U.S., China, and the Eurozone inspired a perceived risk off tone in the markets. U.S. Treasuries fluctuated to finish the month essentially unchanged, while crude oil climbed amid a mix of production concerns and OPEC news. A strong May jobs helped inspire an early-month rally in domestic equities, as the U.S. unemployment rate fell to an 18-year low of 3.8%. Positive employment momentum was further bolstered when the Labor Department s Job Openings and Labor Turnover Survey (JOLTS) revealed that U.S. job openings outpaced the number of unemployed Americans for the first time since data collection began in Further driving equity performance early in the month was a perceived thawing of geopolitical tensions. China announced its intention to buy roughly $70 billion in U.S. farm and energy products if the Trump administration abandoned its tariff threats, while the Chinese Commerce Ministry indicated that positive and concrete progress in multiple areas stemmed from talks between Washington and Beijing. In addition, President Trump and North Korean leader Kim Jong Un met in Singapore in a summit which seemed to produce a conciliatory outlook for the Southeast Asia political landscape. Following these events, the Nasdaq Composite reached its first record close since mid-march, with each member of the closely-watched FANG group rising to all-time highs. The more trade-sensitive Dow and S&P 500 each hit their highest levels since March, while the yield on the 10-year Treasury note topped 3%. The optimism proved fleeting. The G7 Summit in Canada, which saw President Trump trading public jabs with French President Emmanuel Macron and Canadian Prime Minster Justin Trudeau, ended with the U.S. refusing to sign the group s post meeting communique. Global stocks tumbled following reports that President Trump had decided to levy an additional $50 billion in duties on Chinese goods, with Beijing responding in kind by threatening an additional 25% tariff on $34 billion of American agricultural, oil, and auto exports. By the end the month, the United States had threatened or implemented tariffs on nearly $450 billion of Chinese goods out of a total of $500 billion that China ships to the U.S. each year. Further, multiple reports suggested that the White Investment and Insurance Products: NOT FDIC Insured NO Bank Guarantee MAY Lose Value

2 House was planning restrictions on Chinese investments in U.S. companies with industrially significant technology. Despite the noise, the S&P 500 finished June 0.5% higher to cap a 2.9% second quarter advance. The Dow fell 0.6% to move into negative territory for the year, while the Nasdaq continued to outperform its domestic peers with a 0.9% monthly advance. Consumer Staples stocks in the S&P 500 paced the gains (up 4.2%), while the trade-sensitive Industrial group lagged with a 3.4% June swoon. Energy shares were another bright spot, as WTI crude oil rallied 10.6% to finish the month at its highest level in more than three years. Production outages in Libya and Venezuela helped lift prices, as did reports that the White House was pressuring allies to cease all oil imports from Iran by November. Further boosting prices were falling U.S. crude inventories and news that OPEC would increase production by an estimated 700,000 to 1 million barrels per day, which was a smaller boost than many analysts had expected. While sharply higher crude oil did not drive the Energy sector in June, the confluence of news helped Energy stocks rally 12.7% in the second quarter, the best performance of any sector in the S&P 500. Financial sector shares moved in the other direction, with the group sliding 2% in June including a record 13-session losing streak. Banks came under pressure amid deteriorating economic fundamentals abroad and a tightening of the spread between short and long term interest rates, which tends to weigh on lending profitability. In corporate news, M&A continued at a brisk pace, with global deal making reaching a record $2.5 trillion in the first half of AT&T (T $32.71) experienced a roughly flat June performance after a Federal Judge approved the company s long-debated $85 billion merger with Time Warner. Food producers were also active, with ConAgra Brands (CAG $35.19) pending $8.1 billion purchase of Pinnacle Foods (PF $64.97) highlighting a flurry of rumored deals in the space. Amazon (AMZN $ ) made waves in the Health Care space after the ecommerce giants announced it had acquired online pharmacy startup Pillpack. The news weighed on shares of Walgreen s (WBA $60.76), which had recently advanced on news it was joining the Dow Jones Industrial Average, CVS Health (CVS $64.50) and much of the sector. Former Dow component, General Electric (GE $13.37), had its best session since 2015 on June 26 after the company announced plans to sell 20% of its healthcare unit and distribute the remaining proceeds to shareholders. In earnings news, Nike (NKE $76.28) shares soared to a record high after the company reported quarterly profit and revenue that topped expectations. Harley-Davidson (HOG $42.28) became the epicenter for trade concerns in June, after the E.U. announced an uptick in duties on motorcycles imported from the United States. Harley management then drew the ire of President Trump after suggesting it would start making bikes destined for Europe overseas to avoid the $2,200 per motorcycle tariff on its exports. In fixed income, U.S. Treasury yields ended the month essentially where they started it, with the yield on the benchmark 10-year note finishing at 2.85%. Shorter-maturity yields rose, with the two-year climbing to a decade-high of 2.53% after the Federal Reserve hiked interest rates for the second time this year. The Fed s post-meeting release showed that eight of 15 Fed members now anticipate two additional rate hikes this year. During his press conference after the meeting, Chairman Jerome Powell indicated the economy has improved since the Great Recession, moving it closer to a normal level. The rise in short term rates left the spread between U.S. two- and 10-year yields at its narrowest level since 2007 (32 basis points) to close out the month. The Fed news and strong U.S. 2

3 data helped the U.S. dollar cap its third-straight monthly advance, with the greenback posting a quarterly gain for the first time since the end of The rising dollar was one of several factors that helped upend equity performance overseas. The sliding value of developing currencies helped send the MSCI Emerging Markets index to its fifthconsecutive monthly loss, with the group down almost 8% in the first half of Trade tensions, in concert with soft economic data and a steep decline in the Chinese yuan helped send indices in China and Hong Kong into bear market territory in June. The Shanghai Composite fell more than 10% in the second quarter, at one point touching its lowest level since In Europe, the STOXX 600 declined a more modest 0.8% in June as trade concerns weighed on automakers and industrial stocks. The heightened trade rhetoric may have left Eurozone shares more exposed than their U.S. counterparts, as goods and services exports make up 27% of the euro area s GDP, compared only 12% for the United States, according to data from the European Central Bank. Disclaimers Pricing as of market close on July 3, 2018 unless indicated otherwise. All investing involves some degree of risk, whether it is associated with market volatility, purchasing power or a specific security. Additional information available upon request. Past performance is not a guide to future performance. The material contained herein has been prepared from sources and data we believe to be reliable but we make no guarantee as to its accuracy or completeness. This material is published solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or investment product. Opinions and estimates are as of a certain date and subject to change without notice. Index Definitions: The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. The S&P 500 Index is a capitalization-weighted index of 500 stocks, representing all major industries. The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The Shanghai Stock Exchange Composite Index is a capitalization-weighted index. The index tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange. The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 Index represents large, mid and small capitalization companies across 18 countries of the European region. 3

4 U.S. Markets S&P Dow Jones Industrial Average Nasdaq Composite S&P 400 Mid Cap S&P 600 Small Cap U.S. Sector Performance Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecom Real Estate Utilities International Markets U.K. FTSE Germany DAX France CAC Spain IBEX Italy FTSE MIB Greece ATHEX MSCI Emerging Market Shanghai Composite Japan Nikkei Hong Kong Hang Seng Brazil Bovespa Russia Micex India Sensex Treasuries Maturity Close June Ask Yield May Historical Yields April March 2-Year Year Year Year

5 Municipal Bonds Maturity Close June 2018 Q S&P Municipal Bond Index S&P Muni Bond Long Intermediate S&P Muni Bond Intermediate S&P Muni Bond Short S&P Muni Bond Investment Grade S&P Muni Bond High Yield S&P Muni Bond General Obligation Commodities Front Month Futures Close June 2018 Q CRB Index Oil/bbl Natural Gas Gold Silver Copper Nickel Foreign Exchange Currency Close June 2018 Q Dollar Index Euro/USD USD/Yen GBPound/USD USD/CAD USD/Krona USD/Swiss Franc Source: Bloomberg *All prices as of the close June 29, 2018 The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request. Please contact your Financial Advisor. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company Wells Fargo Clearing Services, LLC. All rights reserved. CAR