Presented by Mark Gallagher

General market news
• Rates traded in a range over the past week, following the Federal Reserve (Fed) meeting in the previous week. The 10-year Treasury yield was as low as 2.85 percent and as high as 2.95 percent last week; it opened early Monday morning at 2.86 percent. The 30-year opened at 3.03 percent and the 2-year at 2.54 percent. More important, however, is the steepness of the yield curve. With a difference in yield of only 49 basis points between the 2-year and 30-year, it seems investors are not on the same page with the Fed’s projected growth over the next year.
• U.S. markets were mostly down in the past week, with the exception of the Russell 2000 small-cap index. The trade tensions between the U.S. and China continued to weigh on the major indices, with the Trump administration initially proposing a 10-percent tariff on another $200 billion worth of Chinese goods. Later in the week, the administration threatened to impose a tariff on a total number of Chinese goods up to $450 billion. Other news affecting the markets included a Wall Street Journal article titled, “Don’t Fight the Fed’s Balance Sheet Taper.” It suggested that the Fed’s balance sheet wind down is weighing on international government bond markets and risky global assets.
• Top-performing sectors of the week included real estate, utilities, and energy. Those that were among the worst performers included industrials, materials, and financials.
• Last week was relatively quiet on the economic news front. On Monday, the National Association of Home Builders Housing Market Index declined slightly, as rising labor and timber costs weighed on home builder sentiment.
• On Tuesday, housing starts and building permits were mixed; there were more starts than expected, but permits declined by 4.6 percent. Given the low supply of new homes in the country, these will be important data points to monitor.
• Finally, on Wednesday, existing home sales disappointed by declining slightly against expectations for 1.1-percent growth. Housing growth positively contributes to the U.S. economy, so the health of the housing market is worth watching.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
Housing kicks off the week with the new home sales report, which came in better than expected on Monday morning. The annualized monthly sales were up to 689,000 in May from 662,000 in April, substantially beating the expected 667,000 figure. This increased activity suggests housing demand remains healthy.

On Tuesday, the Conference Board will release its consumer confidence survey. It is expected to pull back slightly, from 128 to 127.5, which would still be a very high level. Should the number come in as anticipated, it would indicate that consumer demand is likely to keep growing.

On Wednesday, the durable goods orders report should give the same indicator for business investment. The headline index, which includes transportation and is heavily influenced by aircraft orders, is expected to improve slightly from a very weak decline of 1.6 percent in April to a still weak decline of 1 percent for May, largely on trends in aircraft orders. This volatility is normal for this data series. The core index, which excludes transportation, is expected to do much better, pulling back from monthly growth of 0.9 percent in April to 0.5 percent in May. This result would still be healthy and a good indicator of future growth.

On Friday, the personal income and spending report will give further insight into the consumer. Personal income growth is expected to rise from 0.3 percent in April to 0.4 percent in May. Personal spending growth, on the other hand, is expected to drop back from 0.6 percent in April to a still healthy 0.4 percent in May. We already know that retail spending growth was strong in May, but weaker auto sales may pull the overall figure back a bit. The match in income and spending growth is a good sign for the sustainability of this level of growth.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®

Presented by Mark Gallagher

General market news
• On Monday morning, the 10-year Treasury yield opened at 2.90 percent, while the 30-year opened at 3.03 percent and the 2-year at 2.54 percent. The yield curve is at its flattest level of this tightening cycle.
• U.S. markets were mixed last week, as they had a significant amount of data and events to digest. The Nasdaq Composite and Russell 2000 were up 1.34 percent and
0.72 percent, respectively. The S&P 500 (up 0.07 percent) and the Dow Jones Industrial Average (down 0.84 percent) did not fare as well.
• On Wednesday, the Federal Reserve raised the federal funds rate by 25 basis points, as expected. What was not anticipated, however, was its more bullish tone for the remainder of the year—giving a median projection of three to four rate hikes in 2018. The anticipation of more rate hikes in an attempt to slow the economy sent rates lower as investors shifted to safety.
• The major geopolitical event came on Friday as the U.S. levied $50 billion in tariffs on Chinese imports. The other international news was more positive, with President Donald Trump meeting with Kim Jong-un for the first time in an encounter that was described as cordial. In other international news, Mario Draghi, president of the European Central Bank (ECB), said the ECB would end its quantitative easing plan by the end of 2018 and that rates would be kept steady through the summer of 2019. Finally, it was ruled that AT&T can move forward with its acquisition of Time Warner. This should help pave the way for other deals, such as the one between Disney and 21st Century Fox, and is seen as a positive for the overall mergers and acquisitions environment.
• Last week was a big one for economic updates. On Tuesday, the Consumer Price Index came in at 2.8-percent growth on a year-over-year basis. The core figure, which excludes food and energy, showed 2.2-percent growth.
• On Wednesday, the Producer Price Index indicated accelerated inflation of 3.1 percent year-over-year.
• On Thursday, May retail sales data came in better than expected with 0.8-percent growth, compared with expectations for a more modest increase of 0.4 percent. Given the high level of consumer confidence, faster growth is likely to continue.
• Finally, on Friday, the University of Michigan consumer sentiment survey bounced back from a decline in May.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to

This will be a slow week for economic reports, but we will get some news on housing.

On Monday, the National Association of Home Builders released its industry survey for June, which dropped from 70 last month to 68. But given the lack of lots and labor, as well as a surge in lumber prices, this pullback is reasonable. Overall, the index remains at a healthy level. Despite the shortage of home supply, demand remains strong and should continue to support industry confidence. With inventories falling to a record low in April, that trend should continue

On Tuesday, housing starts are expected to tick up slightly, from 1.29 million in April to 1.31 million in May. Single-family starts have stayed stable over the past several months, while multifamily starts have been volatile. Items to watch will be whether single-family starts rise to match industry confidence.

On Wednesday, the existing home sales report is also expected to rise, from 5.46 million in April to 5.50 million in May. This will come on continued strong demand, especially as buyers move to purchase now before mortgage rates rise further. There may be some downside risk here, however, on lack of supply.

Overall, the housing market is expected to continue to improve, but it will be constrained by lack of supply.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7^th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network^®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network

© 2018 Commonwealth Financial Network^®

Presented by Mark Gallagher

General market news
• The 10-year Treasury yield opened at 2.95 percent on Monday morning, while the
30-year opened at 3.10 percent and the 2-year at 2.52 percent. The Federal Reserve (Fed) is set to raise rates this week, and we may also learn news on its outlook for the remainder of the year and any possible changes to current policy. With the yield curve at or close to its flattest in the current cycle, any slight change to policy could send it closer to possible inversion.
• The three major U.S. indices were all up last week, as recent economic data (May employment report and Institute for Supply Management [ISM] Manufacturing index) indicated strength in the U.S. fundamentals. In addition, trade tensions between China and the U.S. showed signs of easing. In fact, the Wall Street Journal reported that China offered to buy nearly $70 billion in U.S. products to fend off trade tariffs. This offer came in just before the recent G7 summit.
• The top-performing sectors of the week were telecommunications, consumer discretionary, and materials. Those sectors that underperformed included utilities, energy, and technology.
• Last week was relatively quiet for economic updates. On Tuesday, the ISM Nonmanufacturing index bounced back from a slight drop in May, rising from 56.8 to 58.6. This result was better than expected and indicates that the service sectors of the economy remain confident.
• On Wednesday, the trade balance report showed strong net exports, which are expected to add to economic growth in the second quarter. This increase helped shrink the overall trade deficit to $46.2 billion.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
This will be a busy week for economic news.

On Tuesday, the consumer price indices will be released. The headline index, which includes energy and food, is expected to rise by 0.2 percent for May, the same as in April. Core prices, which exclude food and energy, are also expected to rise by 0.2 percent for May, up from a
0.1-percent increase in April. Annual rates for the headline index should increase from 2.5 percent to 2.7 percent in May, up from 2.5 percent in April on base effects. The core index is expected to increase by less, up 2.2 percent for May from 2.1 percent in April. These figures are above the Fed’s target range for inflation, so they will support a rate increase if they come in
as anticipated.

The producer price indices will be released on Wednesday. Headline inflation is expected to increase from 0.1 percent in April to 0.3 percent in May, while the core figure should hold steady at 0.2 percent. On an annual basis, the headline index is expected to increase from 2.6 percent in April to 2.9 percent in May, while core price growth is expected to hold steady at 2.3 percent. Cost pressures on business are expected to remain strong, which will also support Fed action. The question, then, is when those pressures will feed through to consumers.

On Thursday, the retail sales report is expected to show growth, with the headline number rising from a 0.2-percent increase in April to a 0.4-percent increase in May. Core sales, which exclude autos, are also expected to rise from 0.3 percent to 0.4 percent. These numbers reflect a strong level of spending growth. The continued rebound in consumer spending is likely to help support overall faster second-quarter growth, which will likely be well above that of the first quarter.

On Friday, the industrial production report is expected to show that growth has slowed, from 0.7 percent in April to 0.3 percent in May, while manufacturing growth is expected to decline from 0.5 percent to 0.3 percent. Industrial production has benefited from the continued rise in oil drilling, and longer-term manufacturing growth still remains solid.

We’ll also see the University of Michigan consumer confidence survey on Friday. It is expected to rise slightly—from 98 to 98.4—close to recent highs. This would signal continued high levels of consumer spending, although there may be some downside risk here on rising gas prices.

Finally, the regular meeting of the Fed’s Open Market Committee is this week, with the release of the statement and press conference on Wednesday. The Fed is widely expected to raise rates again at this meeting, and such an increase is already priced in to markets. What will be key is what the Fed indicates about future rate hike expectations.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®

Presented by Mark Gallagher

General market news
• The 10-year Treasury yield opened at 2.90 percent on Monday morning. This result was up from last week’s low of 2.75 percent, but it was well below the recent high of 3.12 percent. Meanwhile, the 30-year opened at 3.05 percent and the 2-year at 2.48 percent. Uncertainty with trade policy is causing some concerns globally and is pushing the yield curve flatter.
• The three major U.S. markets were mixed last week. The Nasdaq Composite led the way. It was up 1.65 percent as FANG stocks (i.e., Facebook, Amazon, Netflix, and Google) helped bolster index performance. Energy also fared well, recovering from its sell-off in the week prior.
• Some of the mixed results were due to the geopolitical tensions that continue to grab the headlines. Trade tensions flared up yet again, as the U.S. announced plans to move forward with its efforts to restrict intellectual property. This will be carried out via investment restrictions, World Trade Organization litigation, and $50 billion in tariffs on Chinese products. In addition, there was news that the U.S. will impose 25-percent tariffs on imports from the European Union (EU), Canada, and Mexico. Italy also saw its fair share of political tension; Italian President Mattarella rejected the Five Star Movement and Lega parties’ choice for finance minister. He made this rejection over concerns that the government could push to exit the EU. The coalition deal by the Five Star and Lega parties was ultimately revised, but it did not include their selection, Paolo Savona, as finance minister.
• Last week was a relatively strong one in terms of economic news. On Tuesday, the Conference Board Consumer Confidence Index rose to 128, which is one of the highest levels seen in the past 18 years.
• On Wednesday, the second estimate of first-quarter gross domestic product growth declined modestly to 2.2 percent on an annualized basis. While the decline is disappointing, growth is still expected to pick up markedly in the second quarter.
• Finally, on Friday, the May employment report came in better than expected, with 223,000 new jobs added against expectations for 190,000. The underlying data was solid as well, with the unemployment rate falling to 3.8 percent and average hourly earnings increasing to 2.7 percent on a year-over-year basis.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
We will see two major economic news releases this week.

On Tuesday, the Institute for Supply Management Nonmanufacturing index is expected to rise slightly, from 56.8 in April to 57.8 for May. This is a diffusion index, where values above 50 indicate expansion. As such, the rise would mean that an already robust service sector is getting even stronger. After a slow start to the year, services now appear to be accelerating, with healthy retail sales growth and regional surveys suggesting that continues. This improvement could mean that overall economic growth in the second quarter should be higher than that of the first quarter.

On Wednesday, the international trade report should worsen slightly, with the trade deficit dropping from $49 billion in March to $50.5 billion in April. There may be some upside risk here, however, as the advance goods trade report showed that deficit had narrowed a bit. With the dollar weaker than it was a year ago, exports still have a tailwind, but recent U.S. tariff policy may have started to slow export growth. In any event, trade should be roughly neutral for the economy as a whole in the second quarter, with any contribution being small.

Disclosures: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index. The Bloomberg Barclays US Aggregate Bond Index is an unmanaged market value-weighted performance benchmark for investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities with maturities of at least one year. The U.S. Treasury Index is based on the auctions of U.S. Treasury bills, or on the U.S. Treasury’s daily yield curve. The Bloomberg Barclays US Mortgage Backed Securities (MBS) Index is an unmanaged market value-weighted index of 15- and 30-year fixed-rate securities backed by mortgage pools of the Government National Mortgage Association (GNMA), Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (FHLMC), and balloon mortgages with fixed-rate coupons. The Bloomberg Barclays US Municipal Index includes investment-grade, tax-exempt, and fixed-rate bonds with long-term maturities (greater than 2 years) selected from issues larger than $50 million.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network.

© 2018 Commonwealth Financial Network®