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Global equities are mixed amid renewed market calm

Brian Nick, Chief Investment Strategist, TIAA Investments


May 26, 2017

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Quote of the week

“Do what we can, summer will have its flies.” – Ralph Waldo Emerson

The Lead Story: U.S. stocks get by with a little help from the Fed

Following their worst one-day performance in eight months on May 17, U.S. equities have dusted themselves off and reloaded. A six-day winning streak that began the next day and stretched through May 25 lifted the S&P 500 Index above the 2,400 mark for the first time, bringing its year-to-date return to 8.8%. Markets appeared comfortable with the likelihood of further Fed tightening (see “In other news”) and, despite falling oil prices, cheered the prospect of additional OPEC production cuts.

Brian Nick, Chief Investment Strategist, TIAA Investments

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Article Highlights

Meanwhile, U.S.-based investors have benefited from the euro’s rise against the dollar. Supported by more signs of the Eurozone’s economic strength, the common currency broke through the $1.12 mark this week for the first time since last October. Although Europe’s  STOXX 600 Index was down slightly for the week through early afternoon trading on May 26, it’s up a sparkling 17.2% (+10.6% in local terms) for 2017 as a whole. Outflows from U.S. equity ETFs are still landing overseas, with the bulk of the money finding a home in ETFs that track broad developed markets (Europe, especially) and the emerging markets.

In other news: A dovish Fed helps restrain U.S. Treasury yields

Minutes from the Federal Reserve’s May 2-3 meeting, released on May 24, indicated that policymakers believe a rate hike will be coming “soon,” as long as economic data meets their expectations. (Our translation: the Fed will tighten in June barring signs of a sudden and sharp decline in the quality of U.S. economic data.) At the same time, officials expressed some concern about the U.S. economy’s recent soft patch. 

Markets interpreted the minutes as dovish, helping to keep Treasury yields in a narrow trading range. The yield on the bellwether 10-year note hovered around 2.25% for most of the week.

Returns for non-Treasury “spread sectors” were broadly, if modestly, negative. High-yield bonds bucked that trend, posting a modest gain.

Current updates to the week’s market results are available here.

Below the fold: U.S. GDP is revised upward

According to the government’s second estimate, U.S. GDP grew at a 1.2% annual pace in the first quarter, better than the previous estimate of 0.7% and comfortably ahead of forecasts. The increase largely reflected stronger personal consumption, private fixed investment, and state and local spending.   

Among the week's other reports:

  • After reaching their fastest pace in a decade, new home sales decreased in April. Existing home sales also slipped from a 10-year high, restrained by low supply.
  • Weekly jobless claims were little changed at 234,000 but stayed near their post-recession bottom, while the less volatile four-week moving average fell to 235,250—its lowest level in 44 years.
  • Durable goods orders (aircraft, machinery, computer equipment, and other big-ticket items) declined for the first time in five months in April. Orders for core capital goods, a measure of business investment, were flat for the second month in a row.
  • Consumer sentiment edged up, according to the final May reading of the University of Michigan index.

Meanwhile, Europe’s economic recovery continues to gather pace. This week’s data releases included:

  • Business confidence in Germany, the Eurozone’s largest economy, surged to a 26-year best in May, according to the widely followed Ifo Business Climate Index. Business sentiment in France, the region’s second-largest economy, also improved.
  • Manufacturing and service-sector activity in the Eurozone held steady at April’s six-year high, according to Markit’s “flash” (preliminary) Purchasing Managers’ Index, a survey of 5,000 companies. Job creation surged as firms looked to expand capacity and meet rising demand.

Back page:  Remembrances

After the Civil War’s last battle in May 1865, Americans honored their fallen heroes by adorning their graves with flowers. Originally called “Decoration Day”—later “Memorial Day”—it was long celebrated on May 30, before becoming a floating national holiday in 1971. Americans also view this three-day weekend as the unofficial start of summer.

So what can we do before honoring our heroes on Monday? Perhaps indulge in some classic summertime pursuits: 

Read. Favorites include “The Summer Game,” Roger Angell’s baseball classic; “The Great Gatsby,” which takes us back to the summer of 1922; or, for the kids, “How to Eat Fried Worms,” the story of a repulsive bet made by a 10-year-old boy. 

Enjoy a blockbusterNot thrilled by this summer’s lineup? Then dust off the original “Star Wars,” the highest grossing summer movie of all time (adjusted for inflation), which just celebrated the fortieth anniversary of its release. Incidentally, nine of the top-ten highest grossing summer films are either Steven Spielberg or George Lucas flicks.

Listen to tunes. Boomers and hipsters alike will find plenty of opportunities to see their favorite artists perform.  Also noteworthy: the highly anticipated reissue of the Beatles’ classic, “Sgt. Pepper’s Lonely Hearts Club Band,” released fifty years ago on May 26.

Overeat. Try topping the world record for consuming the most hamburgers (69 in 10 minutes) or hotdogs (50 in 12 minutes). 

However you’re moved to celebrate the holiday, happy Memorial Day.