U.S. stocks recorded modest gains last week after closing narrowly mixed on Friday.
Both the Dow and the S&P 500 rose 0.1% Friday while NASDAQ and the Russell 2000 both fell by that amount. For the week, the Dow had a total return of 0.6% while the S&P added 0.4%, closing the week at 2123, another all-time high; both indexes rose for the second week in a row. NASDAQ gained 0.9% for the week despite Friday’s loss, while the Russell 2000 small-cap index added 0.7% for the week.
U.S. Treasury bonds were sharply higher Friday, largely wiping out the week’s earlier losses, following weaker than expected reports on industrial production and consumer sentiment. As a result, the Barclays U.S. bond market aggregate was unchanged on the week. The price of the 10-year T-note rose 0.7% Friday to lower its yield eight basis points to 2.14%, just about where it began the week. The 30-year bond jumped more than two points in price to lower its yield 11 bps to 2.93%, up about four bps for the week.
Reports on the U.S. economy continued to come in worse than expected, lowering expectations of any impending interest rate increase by the Federal Reserve. On Friday the Fed said industrial production fell 0.3% in April, its fifth straight monthly decline and below expectations of no change. Also on Friday, the University of Michigan’s consumer sentiment index dropped 7.3 points in May to 88.6%, its biggest decline since December 2012 and well below forecasts. The drop brings the UofM barometer more in line with the Conference Board’s consumer confidence index, which had been showing less-robust consumer feelings about the economy. Those reports followed Wednesday’s disappointing report on April retail sales, which showed no change after rebounding a revised 1.1% in March. The Street had been expecting a 0.2% increase.
European stocks mainly lost ground last week as the euro continued to surge in value against the dollar. The Stoxx Europe 600 fell nearly 1% on the week while Germany’s DAX index fell more than 2.2%. The euro has been rising sharply against the dollar over the past month, ending the week at more than $1.14, its highest level in three months and up more than 2% last week and more than 7% the past month. Remarkably, the euro zone economy shows renewed signs of life just as the U.S. seems headed in the other direction. On Wednesday the European Union’s statistics office said euro zone GDP rose 0.4% in the first quarter of this year after expanding 0.3% in the previous quarter despite slowing growth in Germany. By comparison, U.S. GDP rose only 0.2% in Q1, and economists are now expecting that figure to be revised downward to show negative growth. In the bond market, yields on German bunds continued to rise, with the yield on the 10-year security climbing eight basis points last week to 0.63% despite falling by that amount on Friday. The yield on the benchmark bund has jumped 56 bps after hitting an all-time closing low of 0.07% on April 20.
Asian stocks closed higher last week, rebounding from the previous week’s losses. The Shanghai composite index once again led the way, rising 2.4% for the week despite a 1.6% loss on Friday. Last Monday, the index jumped 3% after the central bank cut interest rates. Japan’s Nikkei 225 rose 1.8% last week, its first winning week in the past three. Hong Kong and Indian stocks both gained about 0.8% last week.
Reports/dates/facts/links worth paying attention to over the next week:
- May 18: National Association of Home Builders housing market index for May.
- May 19: Housing starts for April.
- May 20: Minutes of the Federal Reserve’s Federal Open Market Committee meeting of April 29 are released.
- May 21: Weekly unemployment claims; Chicago Fed national activity index for April; existing home sales for April; leading indicators for April; Philadelphia Fed business outlook survey for May.
- May 22: Consumer price index for April.
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