Presented by Mark Gallagher

General Market News
• Last week, rates moved higher across the curve. The 10-year opened on Monday at 2.11 percent, while the 30-year opened at 2.64 percent and the 2-year opened at 1.83 percent.
• U.S. indices continued their streak of gains last week, with the S&P 500 closing above the 3,000 level. The leading sectors were energy, consumer discretionary, and technology. The top detractors were health care, materials, REITs, and utilities.
• On Wednesday, we saw the release of the minutes from the most recent Federal Open Market Committee meeting in June. As expected, they showed that many Federal Reserve (Fed) officials are growing more concerned with downside risks to the economy, as global growth continues to slow in the face of ongoing trade turbulence. Officials indicated that these concerns may be enough to justify near-term rate cuts to support the economy. This supportive attitude, combined with similar comments made to Congress by Fed Chairman Jerome Powell, has market participants widely expecting a rate cut at the next Fed meeting at the end of the month.
• On Thursday, the Consumer Price Index for June was released. Headline inflation came in as expected, falling to 1.6 percent on a year-over-year basis due in large part to weakness in energy prices. Consumer inflation has declined on a year-over-year basis in each of the past three months, and it now sits well below the Fed’s stated 2 percent inflation target. The core inflation figure, which strips out the impact of food and energy costs, came in higher than expected, with 0.3 percent monthly growth. This result brought the year-over-year core figure to 2.1 percent. Consumer inflation may be set to increase further, as the impact from tariffs on Chinese goods has yet to fully hit consumers.
• On Friday, June’s Producer Price Index was released. It showed higher-than-expected producer inflation. Monthly inflation rose by 0.1 percent against expectations of no change. On a year-over-year basis, producer inflation grew by 2.3 percent. As was the case with consumers, low energy prices held back faster inflation during the month, and there may be room for faster growth due to increased pressure from Chinese tariffs.

Source: Bloomberg

Source: Morningstar Direct

What to Look Forward To
On Tuesday, June’s retail sales data is set to be released. Economists expect to see monthly growth of 0.2 percent, following a 0.5 percent increase in May. Core sales, which exclude auto and gas prices, are expected to show healthy growth of 0.4 percent. Consumer confidence remains near multidecade highs, so steady growth in sales should follow.

Also on Tuesday, June’s industrial production report is set to be released. Production increased by 0.4 percent in May, partially due to 0.2 percent growth in manufacturing output. Economists expect 0.1 percent growth in production and 0.3 percent growth in manufacturing output for the month. Declining confidence figures in the manufacturing sector indicate that any increase in output is likely to be short lived unless confidence rebounds meaningfully.

Speaking of confidence, the National Association of Home Builders index is also set to be released on Tuesday. This measure of homebuilder confidence is expected to remain stable at 64 for July, as homebuilders remain reasonably confident in the housing market. The index is broken down by region. For most of the year, homebuilders in the Northeast and Midwest have shown significantly lower confidence scores than their counterparts in the South and West, which suggests regional weakness rather than a country-wide decline.

Wednesday will see the release of June’s housing starts data. It is expected to show a decline of 0.7 percent, following a decline of 0.9 percent in May. The decline in May lined up with a similar decline in homebuilder confidence, as a shortage of workers caused homebuilders to pause on new construction. There may be some upside potential here, as building permits increased in May for the first time in seven months, and homebuilder confidence is not expected to drop.

Finally, we’ll end the week with Friday’s release of the University of Michigan consumer confidence survey. Confidence is expected to pick up slightly, from 98.2 in June to 98.6 in July. Given the strong jobs market and stock markets that are near all-time highs, this expected increase in confidence would make a lot of sense. Growing consumer confidence bodes well for future economic growth in the second half of the year, as consumer spending is the backbone of the economy.

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.

© 2019 Commonwealth Financial Network ®

Presented by Mark Gallagher

General Market News
• After the Federal Open Market Committee (FOMC) meeting on June 19, rates have ranged between 1.97 percent and 2.06 percent. The 10-year Treasury yield opened at 2.01 percent on Monday. Most of the curve moved slightly lower, with the 1-month and 3-month yields moving the most. Bond investors are anticipating a possible rate cut at the end of July FOMC meeting.
• All three major U.S. markets were down slightly ahead of the meeting between President Trump and Chinese leader Xi Jinping. Despite the tension surrounding the G20 meeting, the market actually moved away from bond proxies and favored a more risk-on sentiment. As the week continued, the consensus expectation was that there would be a truce that would restart trade negotiations. As a result, REITs and utilities sold off, and investors rotated into financials, materials, and industrials. Financials were supported by the U.S. banks passing their capital asset stress tests. The pass allowed many of these firms, such as JPMorgan, Bank of America, and Wells Fargo, to propose raising dividends.
• Turning to economic reports, we saw the release of May’s new home sales report last Tuesday. Sales fell by 7.8 percent during the month, which was a disappointment given economist expectations for growth of 2.2 percent. This marks the second straight month of declining new home sales.
• Also on Tuesday, the Conference Board Consumer Confidence Index was released, dropping sharply from 131.3 in May down to 121.5 in June. Both the present condition and future expectations indices declined during the month, as concerns regarding trade tensions with China outweighed the positive tailwind from the month’s strong equity performance.
• On Wednesday, we received the first estimate of May’s durable goods orders. Headline orders declined by 1.3 percent, in large part due to the ongoing issues Boeing is having with its grounded 737 MAX airplanes. The core durable goods figure, however, which strips out transportation orders, grew 0.3 percent in May. This steady growth in the core figure suggests that overall business investment remains healthy, despite the problems with Boeing.
• On Friday, May’s personal income and personal spending reports were released. Income grew by 0.5 percent in May, while spending rose by 0.4 percent. These results were largely in line with expectations and show growth remained constant with April’s levels.
• Finally, the week ended with the release of the second and final estimate of the University of Michigan consumer sentiment index for June. Consumer confidence increased from 97.9 mid-month to 98.2 by month-end. This improvement was driven by a jump in the current conditions index, which was likely helped by the strong equity returns we saw during the month. While this improvement is encouraging, the index still sits slightly below May’s level.

Source: Bloomberg

Source: Morningstar Direct

What to Look Forward To
On Monday, data from the Institute for Supply Management (ISM) Manufacturing index was released. This measure of manufacturer optimism fell from 52.1 in May to 51.7 in June. This decline was smaller than economists expected, but it still brought the index to its lowest level since October 2016. This is a diffusion index, where values greater than 50 indicate expansion, so manufacturers still expect growth going forward.

On Wednesday, we will receive the report on May’s international trade balance. It is expected to show the deficit widening from $50.8 billion to $52.5 billion during the month. Declines in both imports and exports are expected, given the increasing pressure on global trade from the ongoing trade war between China and the U.S.

Wednesday will also see the release of the ISM Nonmanufacturing index. It is expected to drop from 56.9 to 56 in June, following a jump in May that was larger than economists expected. Despite the expected modest pullback, the index still shows solid growth expectations for the service sector.

Finally, on Friday, we will receive June’s employment report. It is slated to show 160,000 new jobs were added during the month. The unemployment rate is expected to stay at 3.6 percent, which represents the lowest level since August 1969.

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.

© 2019 Commonwealth Financial Network ®

Presented by Mark Gallagher

General Market News
• Rates dropped after the Federal Open Market Committee (FOMC) meeting last week. The 10-year Treasury yield dropped from 2.11 percent at the start of the week to below 2 percent after the meeting. On Monday, it opened at 2.02 percent. The 2-year and 30-year yields stand at 2.74 percent and 2.54 percent, respectively.
• The perceived dovish tone from the FOMC meeting was one of the main drivers in stocks last week. Although the committee left rates unchanged, investors flocked to riskier assets, as the word patient was removed from the stated approach to future potential rate cuts. Another driver of trade was news of heightened tensions between the U.S. and Iran, with Iran claiming responsibility for shooting down an American drone over the Strait of Hormuz on Thursday.
• The energy, technology, and industrials sectors were last week’s top performers. Oil drove the rally in energy. The strength in technology was supported by the launch of Facebook’s cryptocurrency, Libra, as well as strong operating numbers from Oracle and Adobe. Consumer staples, materials, and financials were underperformers.
• On Monday, the National Association of Home Builders Housing Market Index for May fell from 66 to 64, against expectations for a modest increase to 67. This unexpected decline was due to dropping sentiment in the northeastern and western regions, which was likely weather related. While this decline was disappointing, the index still sits well above lows seen in December and January, so there is no immediate cause for concern.
• On Tuesday, May’s housing starts and building permits reports were released. These results were mixed, with starts declining by 0.9 percent and permits increasing by 0.3 percent. Economists had forecast modest growth for both figures, but housing starts surged by 5.7 percent in April, so the pullback in May is understandable.
• The week ended with the release of May’s existing home sales figure on Friday. Existing home sales increased by 2.5 percent during the month, which beat expectations for 2.1 percent growth. Given the decline in home builder confidence during this same period, the growth in sales is very encouraging.

Source: Bloomberg

Source: Morningstar Direct

What to Look Forward To
Tuesday will see the release of May’s new home sales report. Economists expect sales to grow by 2.2 percent month-over-month, which would be in line with the growth in existing home sales we saw last month. If we do see this modest growth, it would bring new home sales to its second-highest level in the past 12 months, nearing postrecession highs.

Tuesday will also see the release of the Conference Board consumer confidence survey. It is expected to decline slightly from 134.1 to 131 in June. Despite this expected pullback, consumer confidence remains near multiyear highs, as a healthy job market and a rebound in U.S. equities supported confidence during the month.

On Wednesday, we will receive the first report for May’s durable goods orders. Headline orders are expected to decline by 0.2 percent, primarily driven by a decline in transportation orders. There is further downside risk here, as the impact from the ongoing grounding of the Boeing 737 MAX could lead to even steeper declines in headline orders. Core orders, which strip out volatile transportation figures, are expected to show modest 0.2 percent growth.

On Friday, May’s personal income and personal spending reports are both set to be released. Income is expected to grow by 0.3 percent, while spending is set to increase by 0.5 percent. This would follow similar growth figures from April. Consumer spending is the backbone of the economy, so this continued steady growth in consumers’ ability and willingness to spend is very encouraging.

Finally, we finish the week with the second and final release of the University of Michigan Consumer Sentiment Index for June. It is expected to decline slightly from 97.9 to 97.7. Similar to the Conference Board measure of confidence, this index remains near postrecession highs, so this slight pullback is nothing to worry about.

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.

© 2019 Commonwealth Financial Network ®

Presented by Mark Gallagher

General Market News
• Last week, the 10-year Treasury yield dropped as low as 2.05 percent, and it opened at 2.10 percent on Monday morning. Most of the curve remains inverted, with the 3-year, 2-year, and 5-year yields coming in at 1.81 percent, 1.87 percent, and 1.86 percent, respectively.
• U.S. markets were up slightly last week, putting an end to the downward streak of the four weeks prior. Possible drivers were the suspension of tariffs on Mexico and news of constructive trade talks between U.S. Treasury Secretary Steven Mnuchin and People’s Bank of China Governor Yi Gang.
• Last week saw a rebound in the communication services sector, which took a beating recently over looming FTC investigations. Facebook was up more than 4 percent. The weakest-performing sector was energy, which sold off as crude oil hit its highest level since July 2017.
• The week began with Tuesday’s release of the Producer Price Index for May. Producer inflation rose by 0.1 percent during the month, which lowered the year-over-year inflation rate to 1.8 percent, down from 2.2 percent in April.
• On Wednesday, the May Consumer Price Index was released. Consumer prices rose by 0.1 percent, leaving year-over-year inflation at 1.8 percent. These two popular measures of inflation are now firmly below the Federal Reserve’s (Fed’s) stated 2 percent inflation target, so this slowdown is another reason the Fed is not expected to hike rates.
• On Friday, May’s industrial production report was released. Production increased by 0.4 percent during the month, which was better than economist expectations for 0.2 percent growth. This result was primarily driven by increased utilities output.
• Also on Friday, the University of Michigan Consumer Sentiment Index declined slightly, from 100 to 97.8, as expected. This measure of consumer confidence still sits near 15-year highs, so this pullback, while worth watching, is not an immediate concern.
• Finally, we ended the week with the release of May’s retail sales, which showed a strong rebound after a weak April. Retail sales grew by 0.5 percent in May, and the disappointing 0.2 percent loss in April was revised up to show 0.3 percent growth during the month. This was a very positive result for the economy, given the importance of consumer spending on overall growth. With confidence high and consumers spending, solid economic growth in the second quarter remains likely.

Source: Bloomberg

Source: Morningstar Direct

What to Look Forward To
This week is off to a rocky start with the release of May’s National Association of Home Builders Housing Market Index. This gauge of home builder optimism was expected to increase from 66 to 67, which would have been a nine-month high. Instead, the index dropped to 64, due to declines in sentiment in the northeastern and western regions. While this result is disappointing, the index still sits well above the lows seen in December and January, so there is no immediate cause for concern.

On Tuesday, May’s housing starts and building permits data is set to be released. Both measures of new home construction are expected to show mild growth. Despite a slight rebound in April, the supply of homes for sale remains well below late-2018 levels, so a positive surprise here would be welcome.

The Federal Open Market Committee is meeting this week and will be releasing its rate decision on Wednesday. Market participants widely expect the Fed to keep rates steady and are looking ahead to the July and September meetings for potential rate cuts.

We will finish the week with the release of May’s existing home sales data on Friday. Sales are expected to show 2.1 percent growth, following a decline in April. Falling rates have led to a surge in mortgage applications, so growth in housing sales should follow.

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.

© 2019 Commonwealth Financial Network ®