Market Summary
Despite some oil price turbulence that weighed on energy stocks and mounting geopolitical tensions, the U.S. stock market managed to eke out small gains this past week. For the week, the Dow finished up 0.2%, the S&P up 0.3% and the Nasdaq up 1.1%. Utility stocks were the greatest contributor from a sector perspective with a 3.1% gain for the week due to their domestic concentrations, non-cyclical nature, and high dividend yields, which became more attractive as the 10-year Treasury yield fell to 2.93% from 3.07% the week prior.
Last week marked a significant milestone in corporate regulation for both the U.S. and the European Union. In the U.S., aspects of the post-financial crisis Dodd-Frank Reform Act were rolled back to ease restrictions on the financial services sector. Specifically, the House approved a Senate-passed bill that would raise the level at which banks are considered systemically important and that would exempt smaller banks from rules banning proprietary trading and reduce minimum standards on certain home mortgage loans. Despite the regulatory relief, the financial sector edged down 0.4% for the week.
In the EU, a major change of data privacy regulations came into effect as the General Data Protection Regulation was enacted. The rules, which encompass any company doing business in the EU, include new privacy rights and data collection responsibilities and could have large implications for members of the technology sector operating in Europe. The new rules are backed up with large fines of up to 4% of a firm's worldwide annual revenue or €20M, whichever is larger.
Regarding the U.S.-China trade dispute, both sides remain relatively entrenched. China’s spokesman at the Ministry of Commerce, stated that China will firmly defend its rights and interests. His comments follow the opening of an investigation by the Trump administration into car and truck imports, which may lead to new U.S. tariffs similar to those imposed on imported steel and aluminum in March.
Economic Highlights
- Monetary Policy: Minutes from the Federal Open Market Committee (FOMC) May meeting suggest the committee is leaning toward a rate increase in June, but suggested it may not be as aggressive with its hikes as many had thought in the past. The release also indicated that the Fed would be willing to let inflation temporarily run above the 2% target. Officials in March suggested three rate rises this year.
- Housing: New and existing home sales dropped by 1.5% and 2.5%, respectively, in April, both below expectations for further sales growth. Home sales have been constricted less by declining demand and more due to dwindling supply that has fed into rising home prices, in addition to rising mortgage rates.
- Commodities: Brent and WTI crude oil each finished the week down 2.6% on news of a potential temporary lift in oil production cuts from OPEC and unexpectedly high US crude oil inventory levels.
US Economy - The Week Ahead
Tuesday, 5/29/2018
S&P/Case-Schiller Home Price Index (HPI) – Consensus Estimate: 208.53 (+0.9% MoM), Prior Month: 206.67 (+0.7% MoM)
Wednesday, 5/30/2018
ADP Employment Change – Consensus Estimate: 190,000, Prior Month: 204,000
Federal Reserve Beige Book – A summary of Fed commentary on current economic conditions by district
Thursday, 5/31/2018
Initial Jobless Claims – Consensus Estimate: 226,000 (-3.4% WoW), Prior Week: 234,000 (4.9% WoW)
Friday, 6/1/2018
US Unemployment Rate – Consensus Estimate: 3.9%, Prior Month: 3.9 %
Nonfarm Payroll Employment – Consensus Estimate: 190,000, Prior Month: 164,000
ISM Manufacturing PMI – Consensus Estimate: 58.1 (1.4% MoM), Prior Month: 57.3 (-3.4% MoM)
