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U.S. equity prices managed to finish the week to the plus side, but just barely as the S&P 500® Index posted a gain of 0.6%.



Weekly Market Overview | July 30, 2018

July 30, 2018
By Peter Sorrentino, Chief Investment Officer

U.S. equity prices managed to finish the week to the plus side, but just barely as the S&P 500® Index posted a gain of 0.6%. Looking at the sector returns for last week gives you a sense of the influence the technology sector now has over the market. As we wrap up second quarter earnings, the number of strong reports in the non-IT part of the economy boosted returns for the energy sector (up 2.3%), while industrials and financials tied for second, up 2.1%. With all the press surrounding the earnings misses by Facebook and Twitter, technology overall only surrendered 0.97% last week. The only other weakness in the market was this year’s second place sector, consumer discretion, which slipped 0.46%. With technology and consumer discretion stumbling last week, the growth vs. value metric swung strongly back in favor of value as witnessed by the 1.3% gain of the Russell 1000 Value Index, versus the 0.5% loss of the Russell 1000 Growth Index. The term structure of U.S. interest rates moved higher last week, with the yield on the ten-year Treasury bond closing in once more on 3%, while that of the 30-year managed to cross the 3% threshold, closing the week at 3.082%. International equity markets enjoyed a positive week as well, with the developed markets, as represented by the MSCI EAFE® Index, adding 1.3%. It was an even better week for the emerging markets, as represented by the MSCI Emerging Market Index, which gained 2.1%.

With U.S. rates once more on the ascent, I will reiterate my admonition to those who have stretched for yield – unwind those positions now, before everyone in the theater heads for the exits. The most recent forecast given by Comerica’s Chief Economist, Dr. Robert Dye, is calling for only modestly higher yields for U.S. Treasury obligations and, as you can see in Exhibit 1, this is for good reason. The yield on U.S. Treasuries is still higher than the yield available to investors in Europe, save buying Greek obligations. The same holds true for Asia, save for Chinese obligations. As we experienced back in May when the political winds in Italy shifted, U.S. Treasuries are still the ‘go-to’ in times of uncertainty. But, as the effects of global quantitative easing fade, credit markets are getting back to normal. This means credit spreads will continue to drift wider, and volatility will amplify price swings. As we witnessed in 2016 with MLPs, and earlier this year with REITs, when the bond refugees leave, there is no law on the books that says anyone must buy.

Exhibit 1 (Source: Bloomberg)

For a PDF version of this publication, click here: 07.30.18_WeeklyMarketOverview

 

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