Emerging markets and international have both lapped or nearly lapped the S&P 500 year to date as investors are diverted by action in FANGS.
The Nasdaq dipped for the second consecutive week along with oil and gold. The S&P 500 and Dow Jones finished slightly higher following a period largely consumed with the latest Federal Open Market Committee (FOMC) rate hike. The 10-year U.S. Treasury yield closed at approximately 2.16%.
The FOMC hiked short-term interest rates 25 basis points (bp), as widely expected. Their statement emphasized that economic activity has been rising moderately this year. The Fed further acknowledged that inflation data has been soft and discussed its plan to begin normalizing its balance sheet “this year.” The statement does not outline a definitive endpoint to the normalization but says that the quantity of reserve balances will fall, but will remain larger than before the financial crisis.
Reuters reported that the Trump administration and top GOP leaders in Congress are within a few weeks of agreeing on key aspects of a tax overhaul plan. Officials still need to decide how much to slash tax rates and if the package should increase the budget deficit.
The Producer Price Index (PPI) for May came in unchanged compared to April, matching expectations. However, producer prices ex-food and energy rose 0.3% month to month, ahead of the 0.2% gain expected. On a year to year basis, PPI rose 2.1%, above the 2% increase expected. That was the first reading above 2% in the last three years.
The headline Consumer Price Index (CPI) was down 0.1% month to month in May vs. April’s 0.2% rise and consensus for a 0.1% gain. CPI rose 1.9% year to year, the lowest 12-month change since the November 2016 report.
May retail sales declined 0.3% month to month following a 0.4% rise in April. This missed the consensus for a 0.1% rise. Retail sales are up 3.8% year over year.
The NFIB Small Business Optimism Index came in at 104.5 for May, matching April’s reading and remained pinned near all-time highs. Much of the focus in the survey remained on the tight labor market. The average employment change per firm was 0.34, which puts hiring activity near the highest levels in the survey’s 43-year history.
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