U.S. equity markets finished this holiday shortened week at new all-time highs with everything outside of the energy patch participating. Meanwhile, yields moved decidedly lower on the back of an unexpectedly weak May jobs report. The commodity complex, led by crude oil had another difficult week, despite OPEC’s efforts to engineer a price increase.

Weekly Anecdotes:

  • A final earnings check from FactSet (99% of the companies in the S&P 500 have reported) has 75% beating the mean EPS estimate and 64% beating the mean sales estimate. The blended 1Q earnings growth rate was 13.9%, which is the highest (year-over-year) earnings growth for the S&P 500 since Q3 2011 (16.7%).
  • An interesting note on volatility is that the VIX has closed below 10.0 fourteen times in history. Six of those fourteen times have occurred this year.
  • The U.S. dollar weakened again last week by 0.75% against a trade weighted basket and is off 5.38% on the year. The weak dollar has provided a noticeable lift to companies with a higher degree of non-U.S. revenue sources. On the year, the Euro is +7.3%, the Yen is +5.86%, and most emerging market currencies are strengthening as well.
  • Fed funds futures are pricing in a 91% probability of a 0.25% rate hike at next week’s FOMC meeting on June 14th.
  • The remarkable run-up in debt since the financial crisis prompted Moody’s to downgrade China’s sovereign debt a notch last week. Chinese authorities have taken steps to curtail leverage in the banking sector which has pushed lending activity to the system’s shadow lenders.
  • Brace for another U.S. congressional debt ceiling controversy. The latest suspension of the debt ceiling expired in March and it looks like the Treasury may need more wiggle room by August, requiring action by Congress.

Economic Updates:

  • The May jobs report, 138,000 of new jobs, missed expectations by a wide margin and was the second lowest point since October. The three-month average payroll growth is down to 120,000, the slowest since July 2012. March and April figures were both revised downward as well. Regardless, unemployment rate fell to a 16-year low rate of 4.3% and amid 117 consecutive weeks of sub-300,000 jobless claims.
  • Market’s initial U.S. services PMI rose to a 4-month high in May, suggesting a healthy U.S. service sector will maintain itself for the foreseeable.
  • The ISM manufacturing index was little changed at a fairly healthy level in May.
  • Case Shiller home price data suggested the housing market remained on firm ground with national prices up 5.75% year over year – close to where they have been running for the past two years.
  • Consumer confidence has served as a strong underpinning to the housing market. Confidence figures saw their first back to back drop since May 2016 but at 117.9, remain well above long term average level of 93.8.
  • 85% of manufacturing PMIs have positive momentum across the 46 ACWI global markets and 91% are above their rising 200-day moving averages.