May 30, 2017 – Weekly Market Commentary



 

Federal Reserve Logo

Binyamin Appelbaum – The New York Times
Fed Sounds Cautious Note but Doesn’t Deter Forecast of Rate Increase

Summary:
The Fed’s meeting minutes indicated that the committee is still planning on raising rates next month. The committee members viewed slow GDP growth in the first quarter as transitory and their comments showed optimism in the economy. The Fed also gave some insight into winding down its balance sheet. The plan is to let its holding mature without re-investing the proceeds.

 

China Flag

Jeff Black – Bloomberg News
China Hit by First Moody’s Downgrade Since 1989 on Debt risk

Summary:
Moody’s Investor Service cut China’s credit rating for the first time since 1989. The agency is concerned that the government will be able to control debt growth while maintaining economic growth. The downgrade is mostly a psychological blow. Moody’s report notes that credit market erosion will be gradual and that reforms could support stronger economic growth.

 

UK Flag

Scott Hamilton – Bloomberg Markets
U.K. Economy Weakens More Than Estimates, Growth Drops to 0.2%

Summary:
The UK’s Q1 GDP was unexpectedly revised downward due to weaker consumer spending and net trade. The revision indicates that fallout from the Brexit vote may be making its way into the economy. The Bank of England is now more likely to hold rates steady during the initial Brexit negotiations.

 

Reuters Logo

Alex Lawler, Rania El Gamal and Ernest Scheyder – Reuters
OPEC, non-OPEC Extend Oil Output Cut by Nine Months to Fight Glut

Summary:
As was widely anticipated, OPEC and non-members led by Russia agreed to extend oil output cuts through March 2018. The markets sold off on the news based on expectations of a possible deeper cut or longer extension. Production cuts have done little to temper the supply glut so far as OPEC members have been exporting from large stores which have been built up in recent years.

 

Tablet showing price chart

Joe Ciolli – Business Insider
Traders Just Got a Sign the Stock Market Rally has a Long Way to Go

Summary:
One of the biggest bull market catalysts looks like it will support further growth in the markets. Profit expansion is growing at the fastest rate in almost six years. Additionally, the breadth of companies revising future profits higher is the widest since 2012. S&P companies are on pace to see 14% earnings growth for Q1.

 

BlackRock Logo

Russ Koesterich, CFA – BlackRock Global Allocation Team
Keep Your Eyes on The Credit Markets, not Washington

Summary:
So far, investors have been looking past political turmoil. This is not a surprise given that historically, economic policy uncertainty and market volatility tend to move together rather than one leading the other. Leading economic indicators and credit spreads give much more insight into future market volatility. Current spreads indicate that the VIX should be somewhere in the mid-teens, which is where it peaked last during the short sell-off last week.

 

Charles Schwab Logo

Liz Ann Sonders – Chief Investment Strategist
Brad Sorensen – Managing Director of Market and Sector Analysis
Jeffrey Kleintop – Chief Global Investment Strategist

Unprecedented! Or Maybe Not?

Summary:
“Unprecedented” political issues have injected volatility into the market but prices have quickly recovered. Investors shouldn’t get too caught up in political controversies and criticisms. Economic data and earnings growth remain the key drivers of market appreciation. Employment data, stable manufacturing reports, and improving production data should keep the Fed on track for a June rate hike. Internationally, investors should keep an eye on China. Recent data indicates a potential slowdown which could lead to a pullback in commodity prices and lower earnings expectations in emerging markets, Europe, and Japan.

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