Market Perspective for June 10, 2016

The Dow Jones Industrial Average closed up on the week, while the Nasdaq and S&P 500 each saw a modest decline. Over the course of the week, both the DJIA and S&P 500 crossed 18,000 and 2,100 before pulling back slightly.

Fed Chair Yellen delivered a speech on Monday indicating the economy was strong and rate hikes are coming, but without further signaling a June hike.  Speculators in the futures market have June rate hike odds at 2 percent and July odds at 21 percent. The Fed is currently in the blackout period; there will be no public comments until the June 15 policy statement next week.

Treasury investors bid up bond prices over the week. The 30-year treasury yield fell below 2.5 percent and is nearing the low for the year. The 10-year yield fell below 1.70 percent and is also approaching the low for the year. Corporate bonds also rallied throughout the week as investors locked in higher yields. Dividend paying stocks outperformed non-dividend stocks for the same reason.

West Texas Intermediate Crude oil climbed above $51 before settling at $49.04 on Friday. Gold also rallied ahead of the British referendum.  Conversely, copper fell to January levels. The weaker dollar also didn’t translate into a win for foreign markets. International shares were hit by losses in European banks on Thursday and Friday. The iShares MSCI EAFE ETF (EFA) was down about 2 percent on the week.

Consumer borrowing rose by a seasonally-adjusted $13.42 billion in April versus an expected $18 billion. Crude inventory decreased by 3.2 million barrels – the third weekly draw down in a row. Crude inventories were expected to decrease slightly, which helped boost the Energy Select Sector SPDR (XLE) more than 2 percent on the week. The strength of the housing market continued as lower interest rates helped mortgage applications rise 9.3 percent.

The Job Openings and Labor Turnover Survey (JOLTS) showed 5.8 million openings, which was higher than expected. The weekly jobless claims number came in lower than consensus estimates.

Wholesale inventories saw strong growth in April, rising 0.6 percent, much faster than the 0.2 percent increase in March. This number directly impacts GDP forecasts and many second quarter estimates were raised as a result. The Atlanta Federal Reserve had priced in the strong growth; its Q2 estimate held firm at 2.5 percent growth in the past week.

In overseas news, the latest eurozone GDP numbers were released on Tuesday. The region grew at an annualized rate of 2.2 percent in the first quarter. Economists believe this is fast enough to satisfy the European Central Bank. UK manufacturing data released Wednesday indicated 2.3 percent growth, the fastest pace in nearly four years. Chinese trade balance remained a point of weakness, while the country’s consumer price index (CPI) rose 2.0 percent.

As earnings season wraps up, lululemon athletica (LULU) reported earnings on Wednesday that were a penny short of the expected $0.31. Shares rose on positive forward guidance and rising same-store sales and profit margins in the athletic-leisure market. FuelCell Energy (FCEL) reported a larger-than-expected loss of $0.560 per share and revenue of $28.5 million, which was less than the consensus estimate of $35 million. The stock is down more than 30 percent. H&R Block (HRB) reported earnings after Thursday’s bell. HRB climbed 18 percent year-on-year in the prior quarter. The firm also announced a 10-percent dividend increase. Shares rallied more than 10 percent in Friday trading.

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