Telemus Weekly Market Review

May 21 – May 25, 2018

Stocks finished last week a touch higher, seemingly unfazed by a continuous stream of geopolitical headlines. Most of the news centered on U.S. – China trade relations and the U.S. – North Korea summit which, as of Thursday, is canceled (for now). The Dow finished the week up 0.15%, the S&P 500 added 0.31%, and the Nasdaq outperformed, gaining 1.08%.

The week began on a positive note following comments from Treasury Secretary Steven Mnuchin, who said that a U.S.-China trade war had been put “on hold” while the two nations continue to try and work out their differences, and following news that the previous week’s trade talks ended with China agreeing to buy more goods from the U.S. in an effort to reduce its trade surplus. China followed up that pledge by announcing early on Tuesday that it will be cutting import tariffs on U.S. automobiles and on some U.S. auto parts.

However, the upbeat vibes faded later on Tuesday when President Trump revealed that the White House has yet to reach a deal with Beijing to save struggling Chinese telecom company ZTE. The news didn’t sit well with investors, who had been expecting the president to use ZTE, which has been severely hurt by U.S. sanctions, as a bargaining chip in trade negotiations with Beijing. Reports on Friday indicated that President Trump and China have finally reached a tentative deal on ZTE, but by then the focus had largely shifted to the ongoing situation in North Korea.

President Trump canceled his June 12 summit with North Korean leader Kim Jong Un on Thursday, stating in an open letter to Mr. Kim that he felt the meeting was “inappropriate” based on the “tremendous anger and open hostility” displayed in a recent statement from a North Korean official directed at Vice President Mike Pence. However, the president left open the possibility of meeting with Mr. Kim, saying on Friday that dialog with North Korea has reopened and that the summit could still happen.

In other political developments, President Trump officially signed the Dodd-Frank reform bill on Thursday, which rolled back regulations on small and medium-sized lenders put in place following the 2008 financial crisis. The president also added that the rollback may be extended to larger banks in the future.

Investors received on Wednesday afternoon the FOMC minutes from the May meeting, which came in more dovish than expected, helping to fuel a late-session rally. The minutes pointed to a rate hike at the June meeting, as expected, and suggested that the Fed may not be as aggressive with its rate-hike path as many had previously thought. The latter takeaway stems from the acknowledgement in the minutes that officials would be content to let inflation briefly run above their 2.0% target.

Overseas, the prospect of a populist government coming to power in Italy weighed on Italian markets, pushing the yield on Italy’s 10-yr bond higher by 25 basis points to 2.47%. A flight to safety pushed both German and U.S. debt higher thereby reducing bond yields. The 10-yr German bund yield dropped 18 basis points to 0.40 last week, and the 10-yr U.S. Treasury note yield dropped 13 basis points to 2.93%. Investors also expressed concern over the ongoing situation in Spain following Friday reports that the country’s opposition party is looking to oust Prime Minister Rajoy.

Meanwhile, reports that Saudi Arabia and Russia will soon relax their crude oil supply constraints to compensate for any production fallout in Venezuela and Iran sent crude prices sharply lower. West Texas Intermediate crude futures hit a fresh three-and-a-half year high on Monday, but finished Friday 6.4% below that level at $67.91 per barrel. A rise in the U.S. dollar didn’t help matters, making commodities, which are priced in U.S. dollars, more expensive for holders of foreign currencies. The U.S. Dollar Index jumped 0.6% last week to 94.13, its highest level since mid-November.

Back on Wall Street, retailers dominated the earnings front once again, with Lowe’s, TJX, Target, Ross Stores, Best Buy, AutoZone, Tiffany & Co, Gap, Kohl’s, Advance Auto, and Foot Locker reporting their quarterly results. The results come in mostly better-than-expected, but a few companies missed bottom-line estimates, including Lowe’s, Target, and Gap.

The S&P 500 sectors finished the week on a mostly higher note, with seven of the eleven sectors ending in the green. The rate sensitive utilities sector led the charge, underpinned by the decline in Treasury yields, while the energy sector was by far the weakest group, suffering from the sharp drop in crude prices.

May 28 – June 1 Economic Calendar

  • Monday
  • Markets Closed
    Memorial Day
  • S&P Corelogic Case-Shiller HPI
    9:00 AM ET
  • Consumer Confidence
    10:00 AM ET
  • State Street Investor Confidence Index
    10:00 AM ET
  • Dallas Fed Mfg Survey
    10:30 AM ET
  • Retail Inventories [Advance]
    8:30 AM ET
  • Wholesale Inventories [Advance]
    8:30 AM ET
  • Redbook
    8:55 AM ET
  • Beige Book
    2:00 PM ET
  • Farm Prices
    3:00 PM ET
  • Money Supply
    4:30 PM ET
  • Tuesday
  • James Bullard Speaks
    12:40 AM ET

  • S&P Corelogic Case-Shiller HPI
    9:00 AM ET
  • Consumer Confidence
    10:00 AM ET
  • State Street Investor Confidence Index
    10:00 AM ET
  • Dallas Fed Mfg Survey
    10:30 AM ET
  • Retail Inventories [Advance]
    8:30 AM ET
  • Wholesale Inventories [Advance]
    8:30 AM ET
  • Redbook
    8:55 AM ET
  • Beige Book
    2:00 PM ET
  • Farm Prices
    3:00 PM ET
  • Money Supply
    4:30 PM ET
  • Wednesday
  • MBA Mortgage Applications
    7:00 AM ET
  • ADP Employment Report
    8:15 AM ET
  • GDP
    8:30 AM ET
  • International Trade in Goods
    8:30 AM ET
  • Corporate Profits
    8:30 AM ET
  • Retail Inventories [Advance]
    8:30 AM ET
  • Wholesale Inventories [Advance]
    8:30 AM ET
  • Redbook
    8:55 AM ET
  • Beige Book
    2:00 PM ET
  • Farm Prices
    3:00 PM ET
  • Money Supply
    4:30 PM ET
  • Thursday
  • Challenger Job-Cut Report
    7:30 AM ET
  • Jobless Claims
    8:30 AM ET
  • Personal Income and Outlays
    8:30 AM ET
  • Chicago PMI
    9:45 AM ET
  • Bloomberg Consumer Comfort Index
    9:45 AM ET
  • Pending Home Sales Index
    10:00 AM ET
  • EIA Natural Gas Report
    10:30 AM ET
  • EIA Petroleum Status Report
    11:00 AM ET
  • Raphael Bostic Speaks
    12:30 PM ET
  • Fed Balance Sheet
    4:30 PM ET
  • Money Supply
    4:30 PM ET
  • Friday
  • Employment Situation
    8:30 AM ET

  • PMI Manufacturing Index
    9:45 AM ET
  • ISM Mfg Index
    10:00 AM ET
  • Construction Spending
    10:00 AM ET
  • Baker-Hughes Rig Count
    1:00 PM ET
  • Retail Inventories [Advance]
    8:30 AM ET
  • Wholesale Inventories [Advance]
    8:30 AM ET
  • Redbook
    8:55 AM ET
  • Beige Book
    2:00 PM ET
  • Farm Prices
    3:00 PM ET
  • Money Supply
    4:30 PM ET

PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. This market commentary is a matter of opinion and is for informational purposes only.  It is not intended as investment advice and does not address or account for individual investor circumstances.  Investment decisions should always be made based on the client’s specific financial needs, goals and objectives, time horizon and risk tolerance.  The statements contained herein are based solely upon the opinions of Telemus Capital, LLC.  All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. Information was obtained from third party sources, which we believe to be reliable, but not guaranteed.