The S&P 500 surged 4.5% last week as optimism about the Federal Reserve cutting rates and the quick end to potential tariffs on Mexican goods pushed markets higher. The global MSCI ACWI soared 3.6% as international markets participated in the surge, but not as much as domestic markets. The Bloomberg BarCap Aggregate Bond Index gained 0.4% as weak jobs data and the hopes of interest-rate cuts pushed rates lower and bond prices higher.
Key Points for the Week
- U.S. jobs data, while positive, showed the economy is slowing.
- The U.S. and Mexico reached an agreement on a greater role for Mexico in combatting illegal immigration to the U.S. from other Central American countries.
- Stocks rallied on expectations the Federal Reserve will cut interest rates to help stave off a decline in economic growth.
Will the Fed Come to the Rescue?
Who can you call on when things look difficult? In the first Star Wars movie, Princess Leia turned to Obi-Wan Kenobi to transfer the plans for the Death Star to rebel leaders. Here on planet Earth, the collective U.S. investment market sent its plea for help to Jerome Powell and the rest of the Federal Reserve for interest-rate cuts to stave off economic decline.
Friday’s U.S. employment data was the latest indication of economic weakness, as only 75,000 jobs were added in May. Expectations were for 185,000 jobs, so the actual number wasn’t close. As the chart shows, only a couple other months in the past year have produced fewer than 150,000 jobs.
The lag in new jobs can partly be attributed to a lack of supply in qualified workers for open positions. Thus, the unemployment rate remained low, at 3.6%. These unfilled positions slow new job creation and the economy in general. Wage growth remains solid, but it has not been enough to lure sufficient workers back into the labor force. Average hourly earnings growth slowed slightly to 3.4%.
Demand is also an issue. Uncertainty around trade has pushed demand lower in the U.S. and overseas. Slowing international growth spreads the decline in U.S.-Chinese trade to a world already struggling to meet expectations for economic growth.
Investors have transferred their hopes from a quick trade resolution to the Federal Reserve. Their heightened expectations are for rates to drop 0.75% by the end of the year. The resolution with Mexico over immigration provided a small boost, but the challenges of reigniting talks between the U.S. and China and the damage done to economic momentum leave investors pleading to the Fed as their only hope.
We’ve all been there before. We get stuck in a traffic jam and try to entertain ourselves to pass the time. For instance, we may get out of our vehicle and tune our bagpipes. Jesse Callender, a bagpiper on his way to perform in Montana last week, was unsure if he’d have time to warm up. So he took matters into his own hands and warmed up on the side of the road.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds