US equity markets rallied sharply last week—due in large part to President Trump’s signaling that US/China trade talks were still on life support, not dead. His encouraging tweets in reference to the upcoming G20 meetings in Osaka and his planned meeting with China’s leader Xi Jinping effectively removed, at least temporarily, the largest variable that has hung over the market for months. As we have discussed, US/China trade is without question the largest variable for investors to price into risk. Without that variable, risk-on was the name of the game. Naturally, as a result, my calls for caution heading into the closing days of trading for Q2 went out the window last week. That happens when tweets come from the White House. The terrain can shift rather suddenly.
It was a great week for equity investors. For the week, the Nasdaq gained 3% while the S&P 500 rose 2.2%, the Dow Industrials added 2.4%, and the Russell 2000 was up 1.8%. Those gains came despite some themes that could potentially have generated a degree of selling pressure. There is an increasingly cautious outlook by the Fed, as framed in the FOMC announcement and Chair press conference. Iran shooting down a US drone, and the near miss in the Persian Gulf with Iran that ensued, all seemed to have little effect on the trade higher—even incrementally.
Last week’s trade higher in US equities was impressive. The clearest indicator of the strength of last week’s move can be seen in the number of new highs. Between the Nasdaq and the NYSE, the total was 453. That is the best tally in over a year. The broad strength fueled the S&P 500 to a record high close on Thursday.
WTI crude oil also gained meaningful ground last week (+10%)—due in large part to a downed unmanned US drone, tensions between the US and Iran, and a near-miss in terms of a military counter-strike by the US in retaliation.
In part, in response to the tensions and potential for military action in the Persian Gulf, gold rose to a 6-year high ($1,400.10/oz.). Also helping fuel gold’s weekly move higher were indications from the ECB that monetary policy would lean into a more simulative posture if the economy continues to slow.
In summary: equities rallied to a record close, WTI crude rallied 10% on Persian Gulf tensions, gold rallied to a 6-year high, and Q2 is rapidly coming to a close. We haven’t even discussed the rally that has continued in the US Treasuries. The US 10-year yield closed out last week at 2.05%. Over the past 52 weeks, the 10-year has rallied a staggering 84 bps. That rally has taken place despite relatively strong economic data over the period.
I would argue that the most significant data point in the litany outlined above comes in the compressed yields of US Treasuries we have been witness to. The appetite for the surety and security of US Treasuries globally is telling us something. Despite the seemingly endless risk-on rally that is being priced into other assets, the bond market is telling us that risk-off is on the horizon. Bonds are the purest indicator of what is on the horizon. Global investors are telling us that the risk-off we see today will be shifting to something entirely different in coming quarters.
This week’s most significant economic data releases:
- New Home Sales for May are out at 10:00 am. Econoday consensus is calling for 680k versus April’s 673k.
- Durable Goods Orders for May are out. Econoday consensus is calling for a flat reading (0.0%) versus April’s -2.1%.
- International Trade in Goods data for May is out at 8:30 am. Econoday consensus is $71.9 B.
- The EIA Petroleum Status Report for the week ending 6/21 is out at 10:30 am. Last week there was mild contraction across all three verticals.
- The final US GDP reading for Q1 is released. Econoday consensus is 3.1%.
- Weekly jobless Claims for the week ending of 6/22 are expected to be inline with recent readings (218K).
- Personal Income and Outlays for May are due out Friday morning at 8:30 am. Income is expected to come in at 0.3%, while consumer spending is expected to be 0.4%—both on a M/M basis.
Recommendation for Kenny’s Commentary readers: Valuable technical analysis work from the legendary technician Marc Sutin, founder of Intuitive Analytics, LLC. For Marc’s current investment insights visit Intuitive Analysis.
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