Market Perspective for June 5, 2017

Google (GOOGL) joined Amazon (AMZN) at $1000 per-share on Monday, but overall the market was flat with the major indexes finishing with very small losses. This week will be light on economic and earnings data. The Federal Reserve is in its blackout period ahead of next week’s meeting, rate hike odds are at 96 percent, and one-month Libor rates have accelerated since mid-May.

Technology, consumer staples, energy and financials rose on Monday, while other sectors traded lower. Energy saw the largest gain, while technology and staples climbed to new 52-week highs.

The service PMIs from Markit and ISM both indicated service sector expansion in May. Factory orders in April fell 0.2 percent, in-line with expectations.

Australia’s central bank is expected to hold rates at 1.5 percent on Tuesday. The U.S. Job Openings and Labor Turnover Survey for April is expected to reflect 5.65 million openings, down from 5.743 million in March. Economists expect the European Union will report first quarter GDP growth of 0.5 percent for the quarter, and 1.7 percent over the last year. Later this week, Chinese trade figures and inflation for May will be out. Followed by U.S. wholesale inventories for April  on Friday.

Crude oil held steady on Monday despite a diplomatic spat between Gulf States and Qatar. Last week, OPEC agreed to extend production cuts until the end of March 2018. The energy sector saw a small rebound on the day after hitting new 2017 lows on Friday.

The U.S. dollar was up slightly on Monday. The U.S. Dollar Index closed at its lowest point since October last week. Both the iShares MSCI EAFE Index (EFA) and iShares MSCI Emerging Markets Index (EEM) fell on Monday, but they are up 16 and 19 percent this year, ahead of the SPDR S&P 500’s (SPY) gain of nearly 10 percent. State Street reported that half of ETF inflows this year have gone to foreign funds.

The 10-year Treasury yield moved higher on Monday, hitting 2.18 percent. Unlike the U.S. dollar, there’s not much support for the 10-year yield if it continues trading lower. The next major support level is at 1.9 percent. Bond funds such as Fidelity Corporate Bond (FCBFX) are approaching 52-week highs as long-term rates slide.

President Trump is expected to nominate two individuals to fill vacancies at the Federal Reserve. Fed policy has crimped bank profitability by shrinking interest rate spreads. A more favorable monetary policy would be welcome news for the banking sector.

J.M. Smucker (SJM) and Brown Forman (BF.B) will headline a very quiet earnings week. Analysts are looking for $1.73 per share in earnings from Smucker and $0.40 from Brown Forman.

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