Monthly Market Insights | June 2019

 
 
 

US Markets

Investors’ hope of an imminent trade deal with China was shattered in May, driving stocks lower and increasing market volatility.

The Dow Jones Industrial Average dropped 6.69 percent, while the Standard & Poor’s 500 Index lost 6.58 percent. The NASDAQ Composite, which is leading this year, fell 7.93 percent.¹

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Stocks opened the month mixed. They slipped on May 1st, following comments by the Federal Reserve, which appeared to eliminate the possibility of a rate cut this year. But they recovered on news of a strong employment report, which pointed to continued economic strength.

Broad Retreat

A Sunday tweet by President Trump threatened China with additional trade tariffs, sent stocks tumbling, and unnerved investors eager for a trade deal by the end of the month.

China responded with counter-tariffs, causing stocks to extend their decline. Following China’s response, many investors realized that the trade talks had moved from an imminent signing to a stalemate. However, stocks turned slightly positive following the release of healthy economic data and hopes that the Fed would act if economic activity slowed.

As the month wore on, trade tensions continued to feed investors’ anxieties, driving the market into a broad retreat. Energy and commodities were hit hard by worries of a global economic slowdown, and a series of weaker-than-expected economic reports did little to encourage investors.

Tariffs on Mexico

Stocks stumbled on the last day of trading, following President Trump’s threatened tariffs on Mexico – in response to the flow of South American migrants into the U.S.

Sector Scorecard

Except for the Real Estate sector, which posted a marginal gain of 0.39 percent, all industry sectors saw losses in May, including Communication Services (-4.47 percent), Consumer Discretionary (-6.38 percent), Consumer Staples (-2.25 percent), Energy (-9.51 percent), Financials (-5.75 percent), Health Care (-1.51 percent), Industrials (-6.36 percent), Materials (-7.14 percent), Technology (-7.11 percent), and Utilities (-1.24 percent). ²

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What Investors May Be Talking About in July

As the U.S. and China trade dispute continues, investors are attempting to anticipate what’s next for the two nations, regarding their $737 billion trade agreement.³ It’s possible that Mexico and Canada may soon start to share headlines with China.

Trade Winds?

The United States-Mexico-Canada Agreement (USMCA), signed in November 2018, must be ratified by each country’s legislative branch. Any hiccups in the ratification process could have broad implications for U.S. trade with Mexico and Canada, which hit $1.38 trillion in 2018.⁴

President Trump agreed in May to end U.S. tariffs on aluminum and steel imports from Mexico and Canada, smoothing the way for passage of the USMCA by each respective countries’ legislatures. However, hope is fading that the U.S. can pass its portion before the August Congressional recess.

Election Wildcards

Upcoming elections could also slow the pace of ratification, with Canada’s federal elections scheduled for October 2019 and the U.S. presidential election slated for November 2020.

President Trump has threatened to withdraw from the North America Free Trade Agreement (NAFTA) if Congress doesn’t approve the USMCA. The lack of a long-term agreement could mean disrupted supply chains, which could influence consumer prices as well as the financial markets.

 

World Markets

The MSCI-EAFE Index sagged under the weight of higher trade tensions, falling 5.42 percent.⁵

Markets in Europe suffered substantial losses. France fell 6.2 percent, while Germany lost 5.0 percent. The U.K.’s FTSE 100 dropped 2.5 percent.⁶

Australia escaped the month’s carnage with a slight gain of 0.3 percent. Japan’s Nikkei 225 dropped 7.4 percent, while the Hang Seng index declined 9.4 percent.⁷

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Indicators

Gross Domestic Product

The second estimate on first-quarter GDP was revised down by 0.1 percent, from 3.2 percent to 3.1 percent.⁸

Employment

The unemployment rate dropped to 3.6 percent in April, as nonfarm payrolls increased by 263,000. Year-over-year wage growth steadied, rising 3.2 percent.⁹

Industrial Production

Industrial production declined 0.5 percent, reflecting a slowing global economy and ongoing trade friction.¹¹

Housing

Housing starts jumped 5.7 percent in April. Home building remains soft this year, with housing starts down 7.2 percent year-to-date versus the same period last year.¹² Sales of existing homes declined 0.4 percent month-over-month, and came in 4.4 percent lower year-over-year, despite the tailwinds of a strong labor market and falling mortgage rates.¹³ New home sales declined 6.9 percent, the largest monthly drop since December. However, purchases of new homes were 7 percent higher compared with those in April 2018.¹⁴

Consumer Price Index

Prices of consumer goods rose 0.3 percent in April. Core consumer prices, which excludes the more volatile food and energy sectors, rose a modest 0.1 percent. Through the last 12 months, inflation reached 2.0 percent, which marks the first time for the year-over-year CPI since November.¹⁵

Durable Goods Orders

Orders for long-lasting goods declined 2.1 percent, on the news that Boeing was suspending delivery of its 737 Max, leading to a plunge in civilian aircraft orders. Weaknesses in motor vehicles and parts and business investment further dragged April's numbers lower.¹⁶

 

The Fed

Minutes from the two-day Federal Open Market Committee, which ended on May 1, revealed few surprises. The minutes reflected the Fed’s general comfort with its wait-and-see approach to interest rates as well as its belief that softness in inflation was transitory.

It should be noted that several committee members did raise concerns over the prospect that below-target inflation might persist and take hold. There was no discussion of a rate cut to address this worry.¹⁷

 

By the Numbers

Travel

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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Any companies mentioned are for illustrative purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The forecasts or forward-looking statements are based on assumptions, may not materialize and are subject to revision without notice. The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risks unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility. Please consult your financial advisor for additional information. Copyright 2019 FMG Suite. 1. The Wall Street Journal, May 31, 2019 2. FactSet Research Systems, Inc., April 30, 2019 3. Office of the United States Trade Representative, The People’s Republic of China, 2019 4. Office of the United States Trade Representative, Canada & Mexico, 2019 5. MSCI.com, May 31, 2019 6. MSCI.com, May 31, 2019 7. MSCI.com, May 31, 2019 8. The Wall Street Journal, May 30, 2019 9. CNBC.com, May 3, 2019 10. The Wall Street Journal, May 15, 2019 11. The Wall Street Journal, May 15, 2019 12. The Wall Street Journal, May 16, 2019 13. The Wall Street Journal, May 21, 2019 14. The Wall Street Journal, May 23, 2019 15. The Wall Street Journal, May 10, 2019 16. The Wall Street Journal, May 24, 2019 17. The Wall Street Journal, May 22, 2019 18. Business Insider, December 5, 2018 19. USTravel.org, March 2019 20. The World Bank, 2019 21. AutoAlliance.org, 2019. Auto manufacturing supports 9.9 million American jobs. 22. MallofAmerica.com, April 2018 23. Disney News, May 24, 2019 24. Graceland.com, 2018 25. Rapid City Journal, August 14, 2018 26. RallyTickets.com, 2019 27. National Geographic, March 8, 2019 28. Statista.com, 2019 29. USAToday, April 26, 2019 30. Travel & Leisure, March 22, 2019 31. FarandWide.com, September 12, 2018