Despite expected tensions over trade at Friday’s G-7 meeting, investors bid up U.S. stocks sharply last week.
The Dow jumped 2.8%, its biggest weekly gain in three months, pushing it into the green for the year (+2.4%), while the S&P 500 and NASDAQ were up 1.6% and 1.2%, respectively, their best gains in a month. The S&P is now up 3.9% year-to-date and NASDAQ is up 10.8%. Smaller cap stocks also did well last week, rising over 2%. Treasury bond yields were higher for the first time in three weeks, with the benchmark 10-year note ending Friday at 2.95%, up five basis points. However, the yield bounced between 2.90% and 3.0% most of the week. The Treasury is selling $68 billion of debt this week, including 10-year and 30-year issues, which may put further upward pressure on rates.
European stocks were down for the third straight week, led by another big drop in Italian stocks. The Stoxx Europe 600 fell 0.5% as Italy’s MIB index dropped 3.4%, its fifth straight weekly loss; the index is down 13% since May 7. Yields on Italian sovereign bonds were sharply higher. The yield on the 10-year bond jumped 39 basis points to 3.11%, its highest level in four years; the yield has risen 137 basis points in the past month. Japanese stocks rebounded 2.4% following two straight weekly losses.
While President Trump’s scheduled summit with North Korea’s Kim Jong-un will likely grab most of the headlines, there’s another important meeting this week: The Federal Reserve’s monetary policy committee meets Tuesday and Wednesday. The committee is expected to raise interest rates another quarter point, bringing the federal funds rate up to 2%, which would be its highest level since the 2008 financial crisis. The Fed last raised rates a quarter point in March. While the Fed has indicated the possibility of another two rate hikes later this year, its most recent messages indicate it’s less concerned about inflation running a little faster than its 2% target, which may mean a less aggressive stance going forward. Both the consumer and producer price indexes will be released prior to this week’s meeting, which also includes the release of its revised economic forecasts and Jerome Powell’s press conference, his second as Fed chair.
There were only a few economic indicators released last week. The Institute for Supply Management’s non-manufacturing index, which tracks most of the economy, rose nearly two points last month to a better-than-expected reading of 58.6 compared to 56.8 in April. That follows the release the prior week of the manufacturing index, which also beat forecasts, climbing to 58.7 from 57.3. Factory orders, which are reported by the government, fell 0.8% in April after rising 1.7% in March; both figures were skewed by a sharp gain, then decline, in civilian aircraft orders. The Fed said U.S. household wealth climbed past the $100 trillion market for the first time in the first quarter, with rising home values offsetting a decline in stock prices.
Reports/dates/facts/links worth paying attention to over the next week:
1. June 12: Consumer price index for May; Federal Open Market Committee meeting opens in Washington.
2. June 13: Producer price index for May; FOMC meeting ends, followed by announcement at 2:00 P.M. EST, revised economic forecasts and press conference by Fed Chair Jerome Powell.
3. June 14: Weekly unemployment claims; retail sales for May.
4. June 15: Industrial production for May; University of Michigan consumer sentiment index for June, first reading; Empire State manufacturing survey for June.