May 22nd – Weekly Update

  • After their worst session of the year and biggest daily dip since last September, U.S. equities gained back some ground. That said, the Nasdaq, Dow Jones and S&P 500 posted slight losses for the period. Oil rallied as investors await the upcoming Organization of Petroleum Exporting Countries (OPEC) meeting. Gold also gained. The 10-year U.S. Treasury yield closed at approximately 2.23%.
  • U.S. equities demonstrated resilience, bouncing back at the end of another week flooded with political headlines. Concerns regarding U.S. policy implementation risks were raised following reports that President Trump shared classified information with Russia’s foreign minister. Senate Majority Leader Mitch McConnell stated that any tax reform package would have to be revenue-neutral. This contrasted with President Trump’s recent comments that suggested tax cuts could add to the short-term deficit in order to fuel longer-term growth.
  • The U.S. dollar index (DXY) fell more than 0.7% to the lowest level since the November election. While no one factor was behind the weakness, policy implementation concerns remain in the forefront amid controversies coming out of the White House. Bespoke Investment Group also pointed out that the Citi’s Economic Surprise Index for the eurozone is higher than 96% of the readings over the last five years, while the U.S. Economic Surprise Index is lower than 84% of readings in that time period.
  • At this point, the consensus is for a 2.1% gross domestic product (GDP) growth rate in 2017 followed by 2.4% in 2018. That’s strong enough for the Federal Reserve to slowly keep reducing the amount of accommodation, though still leaving monetary policy accommodative.
  • Industrial production for April came in stronger than expected, rising 1% from March’s downwardly revised 0.4% gain. It was the largest gain since February 2014 and was up 2.2% year-over year. Manufacturing output rose 1%, while capacity utilization rose to 76.7% from 76.1% and ahead of the 76.3% consensus estimate.
  • April housing starts fell 2.6% month-to-month to a 1.2 million seasonally adjusted rate (SAAR), below the 1.3 million consensus estimate. On a year-to-year basis, housing starts were up 0.7%. Single family starts rose 0.4% month-to-month and 8.9% year-over-year.

CPWM Weekly Market Monitor (2017.05.22)