As last week ended, tension between the U.S. and some of its greatest allies was on the rise. Trade remained a hot-button topic ahead of the G-7 meeting in Canada, but investors seemed largely unfazed by the drama. In fact, all three domestic indexes posted strong results. The S&P 500 added 1.62%, and the NASDAQ gained 1.21%, with both indexes notching their third week of gains in a row.The Dow ended Friday up 2.77% for the week, recording both its highest level and largest weekly gain since March. International stocks were also up, with the MSCI EAFE increasing by 0.91%.
While geopolitical headlines keep unfolding, new data continues to indicate that the U.S. economy is on solid ground. Let's examine a few updates we received last week:
1. The trade deficit decreased in April.
The latest trade data was largely positive, with the trade deficit hitting a seven-month low and coming in nearly $3 billion lower than expected. In April, exports reached their highest level in history. The economists at First Trust believe that this strong performance could push the second-quarter Gross Domestic Product (GDP) as high as 5%.
2. The labor market continues to tighten.
The latest Job Openings and Labor Market Survey (JOLTS) gave an interesting perspective on our current labor market. Right now, more jobs are available than unemployed people looking for them. Since JOLTS began almost 20 years ago, this has never happened before. The data indicates that employers are struggling to hire people for open jobs and that the economy is at full employment.
3. The services sector is expanding.
May data from the ISM non-manufacturing index showed that the services sector has experienced its second-best beginning of a year since the index launched in 1997. Business activity and new orders had very positive performance, which could contribute to continuing service-sector growth for the months ahead. The report also showed prices increasing and provided more data that employers are having a hard time filling jobs in this tight labor market.
What is ahead this week?
We will receive two major central bank reports this week, and the historic U.S.-North Korea summit is on the docket, as well.
President Trump and North Korea's leader Kim Jong Un are meeting on Tuesday. The talks should cover North Korea's nuclear program, but no one can say for sure what market impact it may have.
On a more predictable note, most analysts expect the Federal Reserve to announce its latest interest rate hike on Wednesday. While the markets have likely priced in this increase already, the Fed's projections for the rest of 2018 could affect investor sentiment.
Meanwhile, on Thursday, experts expect the European Central Bank (ECB) will announce a plan to finally wind down its quantitative easing. If the ECB doesn't share a timeline for ending this recession-era program, investors may interpret the move as a sign that policymakers are concerned about the EU's economic outlook.
With a lot to consider this week, we encourage you to remember that many data updates indicate our economy is performing well. As the information unfolds, we're here to help you separate relevant reports from headline hype. Contact us any time if you have questions about how these details may affect your financial life.
- Tuesday: Consumer Price Index
- Wednesday: FOMC Meeting Announcement
- Thursday: Jobless Claims, Retail Sales
- Friday: Industrial Production, Consumer Sentiment
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Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Gross Domestic Product (GDP) is a measure of output from U.S. factories and related consumption in the U.S. It does not include products made by U.S. companies in foreign markets.
The Federal Reserve System (also known as the Federal Reserve and, informally, as the Fed) is the central banking system of the United States. The Federal Reserve System is composed of 12 regional Reserve banks which supervise state member banks. The Federal Reserve System controls the Federal Funds Rate (aka Fed Funds Rate), an important benchmark in financial markets used to influence the supply of money in the U.S. economy.
European Central Bank (ECB) was established on June 1, 1998, in Frankfurt as the body at the center of the European System of Central Banks (ESCB) and the Eurosystem. Together with the national central banks of the European Union (EU) Member States whose currency is the euro, the ECB defines and implements the monetary policy for the euro area.
Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. Quantitative easing is considered when short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes.
The ISM Non-Manufacturing Index is an index that tracks economic data based on surveys of more than 400 non-manufacturing firms' purchasing and supply executives, within 60 sectors across the nation, by the Institute of Supply Management (ISM). The ISM is a non-profit group boasting more than 40,000 members engaged in the supply management and purchasing professions.
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