Major U.S. equity indices managed to seek out a small gain last week while the NASDAQ tacked on 1.8%, led by a strong rally in tech and healthcare names. Despite the scandal ridden headlines throughout 2017, the S&P 500 hit its 24th all-time closing high on Monday. The Senate’s plan to deregulate and overhaul the healthcare industry played well for healthcare sector stocks. Healthy gains in the stock market were again somewhat contradicted by the deflationary/low growth signals of falling interest rates in the bond market. The 10yr U.S. Treasury yields hit its second lowest close of the year.

Weekly Anecdotes:

  • The U.S. economic expansion has now reached 8 years, making it the third longest expansion in the post-war era.
  • Bespoke notes that it has been over 250 trading days since the S&P 500 had a 5% correction, the longest streak since 1996. Only once in the history of the S&P 500 (1995) has the S&P 500 experienced a smaller drawdown in the first half of the year.
  • Oil prices fell into bear market territory, down over 20% from the most recent high. Elevated production in the U.S., Nigeria, and Libya are largely responsible for the lower prices. U.S. production is up 7.3% since OPEC announced plans to cut production in November 2016 and active rig counts are at a 2 year high.
  • Bianco Research points out that a big part of Trump’s market friendly ‘pro-business’ agenda is deregulation, which is clearly on track. The number of pages in the Federal Register is one measure of Federal regulatory activity. The year end 2016 page F.R. page count was 96,994. If the deregulatory pace of the first half of 2017 is maintained, the year-end volume will fall to 61,229 pages, a 40% drop, which has never happened in history.
  • ‘Brexit’ negotiations officially began last week with David Davis, the UK’s Brexit minister, meeting with the European Union’s chief negotiator, Michel Barnier, in Brussels.
  • Last week, French president Macron’s political party, formed just last year, became the first minor party to hold a majority in the French parliament since WWII – another nod to non-establishment political movements taking shape globally.
  • Amazon’s acquisition of Whole Foods brings to mind the secular headwinds challenging the traditional brick and mortar retail industry. CSFB reported that 4,000 shops closed their doors for good in 2016 and they estimate over twice that number will close in 2017. The retailing industry employs 15.9m people, approximately one in nine American jobs.
  • Both the BoJ and BoE voted to keep rates and monetary policy unchanged last week, cementing continued monetary stimulus overseas for the time being. The BoE did have three dissenters voting in favor of higher rates however which was a hawkish surprise for the market.
  • BCA estimates that if the Fed keeps raising rates in line with the “dots,” monetary policy will move into restrictive territory by early 2019.

Economic Updates:

  • A robust May existing home sales report provided a much-needed boost to the recent disappointing housing market indicators. 5.620mm in home sales exceeded the 5.55mm forecast and the median price rose 3.2% for the month, which is up 5.8% year over year.
  • New home sales climbed 2.9% in May and have surged 11.5% year over year, reinforcing the encouraging existing home sales release earlier in the week.
  • Jobless claims came in as expected at 241,000. This marked 120 consecutive weeks with sub 300,000 jobless claims.
  • The weekly EIA petroleum report showed a slight drawdown in inventories and a slight pickup in demand, possibly lending some support to crude oil prices which have fallen over 13% ($8) since May 24th.