Despite being an abbreviated week because of the July 4th holiday, the market was broadly higher on good volume. Capping off the week was a string of positive reports for the labor market, U.S. trade, and in the realm of healthcare. Shares of Biogen Inc. leapt on the release of encouraging clinical results for a compound in the treatment of Alzheimer’s. As would be expected, that last item sent shares in the health care sector up 3.27% for the week. Interest rates slipped back slightly, as the yield on the ten-year Treasury note dipped from 2.86% to 2.82%. This was sufficient to encourage investors on the prospects for utility stocks, as the group posted the second strongest advance last week of 2.49%. Rounding out the leadership was the technology sector, up 2.24%, thanks to better than 4% gains from Advanced Micro Devices, Oracle, Intel and Salesforce.com. The market preference for smaller companies was again apparent last week, as the Russell 2000® Index and the S&P 600 Index posted 3% gains for the week, compared to the 1.6% advance on the S&P 500® Index. The market continues to anticipate little upward movement for interest rates as witnessed by the advantage of growth stocks over value last week, with the Russell 1000 Growth Index picking up 1.92% to the Russell 1000 Value’s 1.29%. International indices posted slight gains last week as well, thanks in part to a pullback in the exchange value of the U.S. dollar. Commodity prices continued to be roiled by global politics with industrial metals continuing to drift lower, off another 4% last week, and grain prices higher, with wheat up 7% and corn up 2%. Oddest of all was the directional schism in crude oil prices, as the more seaborn Brent fell 3%, while WTI gained another half percent. The gap between the two, which had all but disappeared thanks to growing U.S. exports, has now gapped back out. Recall that at the start of this decade, there was a $30 per barrel differential between the two that, by 2015, had not only dissipated but, at times, reversed with a slight premium going to WTI.
In past notes, we have reviewed the cyclical nature of market volatility and the lack of connection between volatility and return. This, however, does not preclude us from employing market volatility to enhance return, and with the disparity of performance among not only equity sectors, but asset classes as well, we can exploit volatility to net a better after-tax return. With second quarter earnings season set to start in the coming week, we can look for windows of opportunity to establish loss reserves and enhance potential returns.
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NOTE: IMPORTANT INFORMATION
Source: Unless otherwise noted, all statistics herein obtained from Bloomberg.
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