Weekly Commentary, 05/01/17 to 05/04/17
It was a fairly complacent week for the major U.S. equity indexes before having a mini-rally Friday, May 4th pushing the S&P 500 and NASDAQ Composite to new closing highs. The S&P 500 Index added 0.63% and the Dow Jones Index gained 0.32%. The technology heavy NASDAQ Composite continued its streak of outperforming, moving 0.88% higher.
U.S. job growth recovered sharply in April with the unemployment rate dropping to 4.4%, near a 10 year low. Nonfarm payrolls surged adding 211,000 jobs following the small gain of 79,000 in March. The tightening labor market affirms the case of an interest rate increase at the June Federal Open Market Committee meeting.
Volatility as measured by the VIX fell to its lowest reading since 2007, trading briefly below 10 on Monday, May 1st. Low levels of volatility is a sign there is very little fear or skepticism among investors.
The House passed a bill to repeal most of President Obama’s signature health care law in a tight vote, handing President Trump his first legislative victory. The bill still faces an uphill battle in the Senate. The vote was important because it should boost investor confidence that the administration will be more likely to pass legislation that would include tax cuts and infrastructure spending.
Concluding a two-day meeting, the Federal Reserve held short-term interest rates steady following a hike in March. In the statement, Fed officials said slow growth earlier this year was “likely to be transitory.” It appears policy makers are sticking with their earlier projections of raising rates two additional times this year. There was no further guidance provided regarding the timing and methodology for paring the $4.5T balance sheet. The yield on the U.S. Treasury note rose from 2.29% to 2.35%.
The finale of the French presidential election is scheduled for Sunday. The polls show the centrist candidate Macron favoring anti-euro candidate Le Pen. A Macron victory will halt the rising tide of nationalism across the Continent and could calm investor anxiety.
First-quarter earnings are on pace to increase 13.5% from the same period a year earlier, according to FactSet. The growth in earnings helps justify what some see as extended equity valuations.
For the week, economic data was somewhat on the weak side. Auto sales were sluggish, and the Institute for Supply Management Index (ISM) missed estimates and slipped to its worst reading in 2018. Personal income and spending figures also lagged. The Fed’s preferred measure of inflation, Core Personal Consumption Expenditures (PCE), fell -0.2%.
Technically speaking, the short and long term trends remain in well-established uptrends. We believe the Stadion strategies are currently positioned to participate well in the current environment, but we will adjust allocations should conditions warrant.
Past performance is no guarantee of future results. Investments are subject to risk, and any of Stadion’s investment strategies may lose money. The investment strategies presented are not appropriate for every investor and financial advisors should review the terms and conditions and risks involved. Stadion’s actively managed portfolios may underperform during bull markets. Some information contained herein was prepared by or obtained from sources that Stadion believes to be reliable. There is no assurance that any of the target prices or other forward-looking statements mentioned will be attained. Any market prices are only indications of market values and are subject to change. The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market and it is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock price. It is not possible to invest directly in indexes (like the S&P 500) which are unmanaged and do not incur fees and charges. The U.S. 10-Year Treasury Note is a debt obligation issued by the United States government that matures in 10 years. The Sharpe ratio measures the excess return per unit of deviation, or risk. The core personal consumption expenditures index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices. Any references to specific securities or market indexes are for informational purposes only. They are not intended as specific investment advice and should not be relied on for making investment decisions.
Past Performance is no guarantee of future results. Investments are subject to risk, and any of Stadion's investment strategies may lose money.