Market Commentary

Market Commentary

US large caps ( 1.4%) and US small caps ( 1.1%) managed to bounce back from last week’s debacle of the Trump – Russian “collusion”. Europe (-0.3%) wasn’t so sanguine, as Trump’s visit to NATO was akin to a landlord showing up to collect overdue rent, even as the Manchester bombing threw uncertainty on its present defensive capacities. Latin America ( 1.3%) continued higher this week, followed by Asia Pacific ex-Japan ( 0.7%). Japanese large caps ( 0.2%) also eked out a gain. The US Dollar slowed its retreat ( 0.3%), helping to send commodity costs (-2.1%) and oil (-1.9%) lower.

Q2 impetus has been away from US equities and into foreign equities, but US equities reached new highs this week — the Nasdaq and especially technology. The strength in Asia Pacific ex-Japan is related to the continued uptick in US tech stocks, since technology represents AXJL’s top three holdings— Samsung, Taiwan semiconductor, and China Mobile.

The Dollar is still weakening, which is a positive for Dollar investors in denominated international equities. Commodity costs are headed south thanks largely to an oversupply of crude, but the past six weeks have been amplified the weak US dollar.  This trend could be altering although weak commodities are an issue for emerging market equities.

The near-term threat of a significant stock exchange collapse appears minimal; the Fed has a probability of a downturn in the next 12 months at less that 10%. Having said that, equity corrections are almost always possible, as we found in Brazil last week.

The Fed kept things steady at their May meeting. Another rate increase continues to be anticipated in the June meeting. In reality, bond returns and also the Dollar have fallen since the December 2016 rate increase. Bond and money traders are certainly betting on a less inflation and a weaker US economy. If so, additional Fed rate hikes might have to be delayed to the further advantage of equities.