May 15, 2017 – Weekly Market Commentary



 

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Lucia Mutikani – Reuters
U.S. Labor Market Tightening; Inflation Pressures Building

Summary:
Applications for US jobless benefits unexpectedly fell last week and April producer prices (PPI) rebounded. The number of Americans on unemployment fell to a 28 and a half year low last month. Benefit claims have remained below the 300,000 threshold associated with a healthy labor market for the longest period since 1970. PPI increased 0.5% to bring the year over year increase to 2.5%. The data shows that the Fed could reach its employment and inflation targets faster than previously thought which could lead to larger or more frequent rate hikes this year.

 

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Gemma Acton – CNBC
Bank of England Leaves Rates Unchanged, Lowers 2017 Growth Forecast

Summary:
The Bank of England left its key interest rate unchanged, citing slower wage growth and the impact of rising inflation on household spending as their key reasons. The BOE’s biggest concern is a slowdown in consumer activity which has hit growth prospects more than previously expected. BOE governors expect that wage growth and improving global demand will begin to offset the negative impact of inflation later this year.

 

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Serene Cheong, Elena Mazneva, and Wael Mahdi – Bloomberg Markets
Saudi Arabia and Russia Signal Oil-Cuts Extension Into 2018

Summary:
Saudi Arabia and Russia said that they could double down on the effort to eliminate excess oil supply by extending production cuts into 2018. OPEC is expected to announce a six-month extension of the current production cut on May 25th. Russia and Saudi Arabia carry the clout in production talks given their size. Their combined March production accounted for 48% of the oil produced in countries that fall under the cut agreement.

 

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Matt Egan – CNN Money
Wall Street Fear Gauge Slips to 23-Year Low

Summary:
The CBOE Volatility Index, or VIX, slipped to its lowest level since December 1993. The uneventful French elections, and positive earnings and economic data have bolstered investor sentiment. Some analysts are worried that central bank actions have created an artificial sense of calm in the markets. Excessive complacency can lead to unsustainable price appreciation and swift market reversals.

 

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Jennifer Ablan – Reuters
European, EM Equities More Attractive Than U.S.

Summary:
Founder and CIO of DoubleLine Capital Jeffrey Gundlach said that European and emerging market equities are currently more attractive than US equities. Overseas markets are “significantly cheaper” on multiple valuation measures and the economic growth narrative is improving.

 

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Richard Turnill – Global Chief Investment Strategist
First-Quarter Earnings: More Than a One-Time Rebound

Summary:
Roughly 80% of S&P 500 companies that have reported Q1 earnings have beat expectations. Earnings and sales improvement has been broad based and upward earning revisions point to future economic growth. European and emerging market companies have also shown substantial earnings growth year over year. Domestically, Turnill prefers value shares, technology, and financials, but see greater upside in European, Japanese, and EM equities.

 

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

Sell in May…or Settle In?

Summary:
The underlying foundation of the bull market looks solid. Economic growth is good but not overheated, corporate profits are strong, inflation is tame, global and political risks have been tempered, and fiscal tailwinds are developing. The current data is positive enough to keep confidence high, but not enough to make the Fed more aggressive. Overseas, a potential slowdown in China could lead to a pullback in emerging market stocks which have been up more than 20% over the last 12 months.

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