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The U.S. equity market ended its month-long slide Tuesday, after having fallen 6.62% from May 3rd through Monday’s close.



Weekly Market Overview | June 10, 2019

June 10, 2019
By Peter Sorrentino, Chief Investment Officer

The U.S. equity market ended its month-long slide Tuesday, after having fallen 6.62% from May 3rd through Monday’s close. The 4.75% rebound had all the hallmarks of a relief rally; the potential tariff targets enjoyed a reprieve. Leading the market last week with a 9% gain was the Materials sector. The industrial chemical and gas producers drove most of the advance. Technology took second place with a 6% gain, leaving the balance of the market clustered around the plus 5% level. The only laggard was the Communication Services sector, which managed to add only 1% for the week. After three weeks of homogenous price action, last week, market capitalization appeared as a performance determinant as evidenced by the 4.4% gain posted by the larger Russell 1000® Index, versus the 3.3% registered by the smaller Russell 2000® Index. But the differentiation ended; there was no performance distinction between growth and value. Developed foreign markets were positive last week, as the MSCI EAFE® Index gained 3.2%. The size bias impacted international markets as well as witnessed by the 0.94% gain in the MSCI Emerging Market Index. While equity markets brightened last week, commodity markets fell largely silent with crude oil adding 1%, and the industrial metals and agricultural commodities were on balance, or unchanged. The U.S. Treasury yield curve steepened last week as the thirty-year remained unchanged, and shorter maturity yields fell. Particularly noteworthy was the drop in thirty-day to one-year maturity range. The inversion on the short end of the yield curve still exists but to a lesser extent than before. Slowing global growth has central banks warming up their liquidity engines, which is bad for bond yields but great for asset bubbles.

Last week, Comerica’s Investment Policy Committee voted to change both our recommended asset allocation and our performance benchmark for managed accounts. We moved to the broader Russell 3000® Index for domestic equity and the ACWI World Ex-U.S. for international. This provides us with greater depth into the U.S. equity market as the Russell 3000® Index contains a dedicated Mid-Cap allocation, something we have not explicitly addressed in past guidelines. The Russell Indices are only reconstituted once annually, as opposed to the quarterly rebalancing of competing indices. This should serve to reduce the drag on investment performance exerted by trading and the associated tax consequences it brings. The ACWI World Ex-U.S. captures 85% of the market capitalization outside of the U.S. market. This includes representation in both developed and emerging markets. In addition, we removed our overweight to Value over Growth, as the prospects of renewed monetary intervention by central banks dampens our earlier view that we would see a steady rise in U.S. interest rates. We believe this shift better positions us with the prevailing investment environment.

 

For a PDF version of this publication, click here: 06.10.2019_WeeklyMarketOverview

 

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