HIGHLIGHTS:
- Strong economic and earnings data helped fuel a stock market advance, despite continued policy turmoil.
- There were more job openings in April than unemployed, offering fresh evidence of a tight labor market.
- Social Security is expected to dip into its reserves this year for the first time since 1982 intensifying pressure to negotiate a long-term funding fix.
- Coming Week: The FOMC is expected to raise short term rates on Wednesday, and the ECB may indicate it is ready to wind down its bond buying program suggesting more upward pressure on yields. President Trump meets with North Korea’s Kim Jong-un.
Strong economic and earnings data helped fuel a stock market advance, despite continued policy turmoil.
The S&P 500 rose an impressive 1.66% in the latest week powered by strength in consumer discretionary stocks. Small cap and international stocks also moved higher. However, bond yields increased for the week dampening bond prices, which was reflected in a -0.24% loss in the Bloomberg Barclays Aggregate Bond Index.
As we approach the middle of the year, the large cap S&P 500 rose 4.85%, and the small cap Russell 2000 jumped 9.47%. International equities have been nearly flat (+0.08%), while the Bloomberg Barclay’s Aggregate Bond Index fell -2.17%.
Oil prices remained under downward pressure, due to planned production increases by Saudi Arabia and Russia to offset production losses in other countries. Gold prices inched higher but remained below $1,300/ounce, while the value of the dollar fell.
There were more job openings in April than unemployed offering fresh evidence of a tight labor market.
The persistent increase in jobs and decline in the unemployment rate suggests that the labor market is getting tight and that wages will start rising rapidly as employers compete for workers. However, wage gains have been relatively low so far in this economic cycle, leaving economists and policy makers scratching their heads. Still, the evidence is building that wage inflation could be just around the corner. That is good news for consumer spending, but it could also hamper corporate profitability.
Social Security is expected to dip into its reserves this year for the first time since 1982 intensifying pressure to negotiate a long-term funding fix.
Social Security this year will have to tap into its nearly $3 trillion trust fund to cover benefits of the program. That is three years sooner than expected a year ago, partly due to lower economic growth projections, according to the latest annual report. The program's income comes from tax revenue and interest from its trust fund. The announcement could generate calls for a long-term fix as we approach the mid-term elections.
Coming Week: The FOMC is expected to raise short term rates on Wednesday, and the ECB may indicate it is ready to wind down its bond buying program suggesting more upward pressure on yields. President Trump meets with North Korea’s Kim Jong-un.
There are plenty of important economic releases due in the coming week, including the consumer price index, retail sales and industrial production, but the market focus is likely to be on monetary policy and the Summit with North Korea.
The Federal Open Market Committee (FOMC) is widely expected to raise short term interest rates by another quarter percent, and all eyes will be on Fed Chairman Jerome Powell at the post-meeting press conference for clues concerning future rate hikes. Also, the European Central Bank (ECB) meets and may announce its intention to begin winding down its bond buying program. The steps would tend to push interest rates higher and bond prices lower.
President Trump is expected to meet with North Korean leader Kim Jong-un on Tuesday. Few expect any dramatic agreement. A positive outcome would be additional meeting in the months ahead.