General market news
- The 10-year Treasury yield dropped to as low as 2.79 percent early Tuesday, while the 30-year opened at 3.05 percent and the 2-year at 2.44 percent. The 10-year had been as high as 3.12 percent a little less than two weeks ago. The steepness of the yield curve (i.e., the spread between short and long rates) reached a new cycle low on Tuesday morning, with the spread between the 2-year and 10-year dropping to 41.5 basis points.
- The three major U.S. indices were up, although there was a mixed underlying story within the sectors. Up more than 1 percent, the Nasdaq Composite led the way, as technology stocks Microsoft, Netflix, and Apple were all major contributors to the S&P 500’s positive performance. Micron stock was also up, with the company announcing a $10 billion share buyback. The energy sector was the largest drag on the market as concerns mounted that OPEC and Russia will dial back their production cuts.
- There was some positive news surrounding trade talks between the U.S. and China. The two countries are looking at a deal to save ZTE in exchange for a change in firm management. Other points of discussion were a Chinese ramp-up in purchases of U.S. agriculture and potential U.S. tariffs on auto imports.
- The top-performing sectors were utilities, REITs, and technology. Those with the worst performance included energy, materials, and financials.
- Last week was relatively quiet on the economic news front. On Wednesday, new home sales showed a decline of 1.5 percent in April. On Thursday, existing home sales also showed weakness, dropping by 2.5 percent. Given increasing housing prices, low levels of supply, and rising mortgage rates, these measures of home ownership bear watching.
- On Friday, durable goods orders came in below expectations with a decline of 1.7 percent in the headline number. While this result was weaker than expected, the core figure, which strips out volatile transportation orders, was better than expected.
| Equity Index | Week-to-Date | Month-to-Date | Year-to-Date | 12-Month |
| S&P 500 | 0.33% | 2.97% | 2.58% | 14.91% |
| Nasdaq Composite | 1.09% | 5.35% | 8.16% | 21.06% |
| DJIA | 0.18% | 2.75% | 1.07% | 20.12% |
| MSCI EAFE | –1.51% | –0.91% | 0.10% | 9.86% |
| MSCI Emerging Markets | –0.01% | –2.19% | –1.18% | 15.00% |
| Russell 2000 | 0.03% | 5.61% | 6.43% | 19.13% |
Source: Bloomberg
| Fixed Income Index | Month-to-Date | Year-to-Date | 12-Month |
| U.S. Broad Market | 0.19% | –2.01% | –0.60% |
| U.S. Treasury | 0.24% | –1.75% | –1.17% |
| U.S. Mortgages | 0.22% | –1.47% | –0.56% |
| Municipal Bond | 0.68% | –0.80% | 0.95% |
DirectSource: MorningStar
What to look forward to
This week’s economic news will give us a broad look at the economy.
On Thursday, the personal income and spending report is expected to show that income growth remained steady at 0.3 percent for April (the same as in March), while spending growth also remained steady at 0.4 percent. Given the inflation factor of 0.2 percent, these numbers would signal reasonable real growth rates. While some of the spending gain will come from rising gas prices, control group sales are expected to rise as well, suggesting that spending growth remains healthy.
On Friday, the employment report is expected to show job growth picked up from 164,000 in April to 190,000 in May. If so, this would be the highest level in the past two months, pushing the six-month average growth rate even higher. Much of the recent job growth has come from construction, manufacturing, and mining—a positive sign as these jobs are often high paying. Wage growth is expected to tick up from 0.1 percent in April to 0.3 percent in May, while the annual rate is expected to rise from 2.6 percent to 2.7 percent. The unemployment rate is expected to hold steady at 3.9 percent. Overall, if the report meets expectations, it would suggest the jobs market continues to be very strong and provide grounds for the Federal Reserve to raise rates in June.
Finally, also on Friday, the Institute for Supply Management (ISM) Manufacturing index is expected to rise from 57.3 to 58.1. This is a diffusion index, where values above 50 indicate expansion. As such, this would be a very positive report. Regional surveys have been strong, and there may be some upside potential here.
Overall, if the reports come in as expected, they would signal accelerating growth and confirm that the first-quarter slowdown continues to subside.