Presented by Mark Gallagher

General Market News
• After experiencing steep declines recently, Treasury yields remained in a tight range last week. While yields did reach cycle lows—2.05 percent for the 10-year and 1.73 percent for the 2-year—both rates were up slightly higher on Monday at 2.13 percent and 1.86 percent, respectively. The 30-year opened at 2.61 percent on Monday after being as low as 2.52 percent last week.
• Global markets rebounded with their best week of the year, as Jerome Powell and the Federal Reserve (Fed) stated that they will “act as appropriate to sustain the expansion.” The market continued to rally on Friday after a poor employment report led investors to believe that the Fed will be more inclined to support activity through low rates. In fact, the Fed funds futures are indicating an 80 percent chance of a rate cut at the July meeting. Another potential reason for the rebound last week was oversold conditions.
• Materials, technology, and consumer staples were among the top performers on the week. The technology sector bounced back nearly 6 percent after a strong sell-off, which was due to the House Judiciary Committee’s announcement that it would launch an investigation into the competition in digital markets. The lagging sectors were communication services, utilities, and consumer discretionary, although all of the sectors posted strong gains for the week.
• On Monday, we saw the release of the Institute for Supply Management (ISM) Manufacturing index. This gauge of manufacturer optimism declined from 52.8 in April to 52.1 in May. Economists had expected to see a modest uptick to 53. Although this decline was disappointing, this is a diffusion index, where values greater than 50 represent expansion. So, manufacturers are still expected to show some growth at current levels.
• On Tuesday, the ISM Nonmanufacturing index made up for the disappointing manufacturing results. It rose from 55.5 in April to 56.9 in May. This was a solid improvement in sentiment for the service sector and leaves the index at levels that are typically consistent with 2 percent annualized gross domestic product growth.
• Thursday saw the release of April’s international trade report, which showed a trade deficit of $50.8 billion for the month. This was a slightly larger gap than economists expected. Both imports and exports fell sharply, as increasing trade war-related pressure is starting to show up in the hard data.
• Finally, on Friday, the May employment report was released. Only 75,000 new jobs were added during the month, against expectations for 175,000. Unemployment remained unchanged at 3.6 percent. All in, this was a concerning report, as strong job growth has been a major driver of overall economic growth in the current expansion.

Source: Bloomberg

Source: Morningstar Direct

What to Look Forward To
On Tuesday, the Producer Price Index for May will be released. Economists expect 0.2 percent month-over-month growth. That result should leave the annual producer inflation figure at 2 percent, down from the 2.2 percent rate seen in April.

The Consumer Price Index is set to be released on Wednesday. It is expected to show modest monthly growth of 0.1 percent. The headline measure of consumer inflation is likely to show 1.9 percent year-over-year growth, which is down from April’s level. Inflation growth has slowed over the past few months, and further declines are possible.

On Friday, we will receive May’s industrial production report. Economists expect 0.2 percent growth, following April’s 0.5 percent decline. Much of the drop in April was due to lowered utilities output, which is expected to reverse in May. There may be some risk to the downside here, given the decline we saw in the ISM Manufacturing index.

Also on Friday, the University of Michigan consumer sentiment survey will be released. The index is expected to drop from 100 to 98. Although any decline would be disappointing, the index currently sits near 15-year highs, so this mild pullback would not be a concern.

Finally, we will receive the advance report for May’s retail sales on Friday. Economists expect a strong rebound of 0.7 percent growth in May, following a surprising decline in April. Given the high level of consumer confidence, strong spending growth 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 ®

Presented by Mark Gallagher

General Market News
• Last week, rates continued to move lower across the curve. The 10-year Treasury, which was as high as 2.47 percent a little over two weeks ago, opened at 2.28 percent early Monday morning. Last week, the 30-year Treasury was at 2.85 percent and was as high as 3 percent four weeks ago; it opened at 2.71 percent on Monday. The 2-year Treasury, which was as high as 2.26 percent last week and 2.37 percent two weeks ago, opened at 2.14 percent. The ongoing trade tensions, coupled with slower economic numbers and expectations, have driven some investors to safety, which has resulted in the recent change in rates.
• Global markets posted losses again last week, and the S&P 500 posted its third straight weekly loss. Recent trade tensions between the U.S. and China have seen investors flock to safer assets. The top-performing sectors were utilities, health care, and REITs. Those that were among the worst performers were the more cyclical sectors in energy, technology, and consumer discretionary.
• Alphabet (GOOG/GOOGL) and chip makers Broadcom (AVGO) and Xilinx (XLNX) were among the names that sold off due to a halt on chip supply and software service to Huawei following a ban by the Trump administration. Concerns were eased somewhat with the 90-day exemption given to certain Huawei suppliers. It remains to be seen if both the Huawei ban and the trade tensions will ease or if they will continue to linger.
• Last week saw the release of only a few important economic data points. On Tuesday, April’s existing home sales fell by 0.4 percent. This was disappointing, as economists had expected modest growth in sales.
• On Thursday, the results were much the same for new home sales, as they fell by 6.9 percent in April.
• Finally, on Friday, April’s durable goods orders declined by 2.1 percent. This was in line with expectations for a 2 percent drop.

Source: Bloomberg

Source: Morningstar Direct

What to Look Forward To
This week is a short one with the Memorial Day holiday, but we still have several important data releases.

On Tuesday, the Conference Board Consumer Confidence Index is expected to tick up slightly. It should go from 129.2 in April to 130.2 for May, which would remain a very high level. This result would also be consistent with the recent 15-year high in the University of Michigan consumer confidence survey. As such, it would be a positive signal for the economy.

On Thursday, we get the second estimate of economic growth in the first quarter of 2019. It is expected to come in at 3.1 percent, slightly below the initial 3.2 percent estimate. More interesting will be whether the composition of growth changes significantly to a more sustainable mix. If the number comes in as expected, it will confirm a surprisingly strong result.

On Friday, we will see the personal income and spending report. Income growth is expected to show an acceleration from 0.1 percent in March to 0.2 percent for April. There will likely be a decrease in spending growth, from 0.9 percent in March to a more sustainable 0.2 percent for April, on a decline in auto sales and utility spending due to mild weather. If the numbers come in as expected, they would indicate continued sustainable growth consistent with strong consumer confidence, which would be positive.

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  
• Treasuries moved lower last week. The 10-year Treasury reached 2.35 percent last Thursday, and it opened at 2.39 percent early Monday. The 30-year Treasury was as low as 2.80 percent last week and opened at 2.82 percent on Monday. The 2-year Treasury reached a low of 2.13 percent and opened at 2.20 percent on Monday; it was as high as 2.41 percent in mid-April. Treasury yields as far out as 12 years are now trading below the upper bound of the current Federal Reserve (Fed) funds rate.
• Global markets continued to sell off last week as U.S.-China trade tensions escalated. China announced its retaliatory tariffs after the U.S. upped its tariffs from 10 percent to 25 percent. On Thursday, the Trump administration announced that it had banned the sale of equipment and software to Huawei, one of China’s largest technology firms. At this point, there is no additional news regarding additional trade talks between the two countries prior to the G20 Summit. There was, however, some constructive trade discussion, with the U.S., Canada, and Mexico announcing an agreement on steel and aluminum tariffs as they hope to reach a new NAFTA deal this year.
• Amid global growth fears, investors flocked to bond proxies in REITs, utilities, and consumer staples, which were the three top-performing sectors. The worst-performing sectors were made up of the more cyclical ones, such as financials, industrials, and consumer discretionary.
• Last week saw the release of a number of important economic updates. On Wednesday, April’s retail sales figures disappointed, declining 0.2 percent during the month. This decline was caused primarily by a drop in car sales, as the core retail sales figure, which strips out autos, rose modestly.
• Also on Wednesday, the National Association of Home Builders Housing Market Index was released. This gauge of homebuilder optimism hit a 7-month high, rising from 63 to 66.
• On Thursday, both housing starts and building permits grew by more than expected, as homebuilders ramped up production in April.
• On Friday, the University of Michigan consumer sentiment survey rose by more than expected, moving from 97.2 to 102.4. This reading is a 15-year high for the index.

Source: Bloomberg

Source: Morningstar Direct

What to Look Forward To
This is a moderately busy week for economic reports, with a focus on the housing market, news from the Fed, and trends in business investment.

The week starts on Tuesday with the existing home sales report. It is expected to show that sales rose from 5.21 million in March to 5.34 million in April on an annualized basis. Housing has been in a slump recently, so an acceleration would be good news.

On Wednesday, the minutes from the last meeting of the Federal Open Market Committee will be released. The meeting itself was uneventful, with no action taken on interest rates (as expected) and no real changes in the statement. Markets will be looking at the minutes to find out how worried the Fed is about inflation being too low, which is a rising concern.

On Thursday, the new home sales report is expected to pull back from 692,000 in March, which was an unexpected jump, to 677,000 for April, which is more in line with previous months. If the numbers come in as expected, this could indicate that housing is stabilizing.

Finally, on Friday, we’ll see the durable goods orders report. The headline index is expected to show a significant swing, dropping from a 2.8 percent increase in March to a 2 percent decrease for April due to a drop in aircraft orders. This is a highly volatile number, and a swing like this is not unusual. The core index, which excludes transportation and is a much better economic indicator, is expected to hold steady at 0.2 percent growth for April, as it did for March. If the numbers come in as expected, it would suggest that business investment continues to grow at current levels, which would be positive.

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  
• Treasuries experienced some elevated volatility last week, with the U.S.-China trade talks and the newly imposed tariffs sending money to safety. The 10-year Treasury was as high as 2.48 percent last week and 2.54 percent the week before. It opened early Monday at 2.41 percent. The short end of the curve remains inverted. The 3-month Treasury is trading at 2.36 percent, which is higher than even the 8-year, which is currently trading at 2.35 percent.
• Global markets were down across the board last week, as U.S. and China trade concerns pushed markets lower. President Trump tweeted that he would increase the tariffs on $200 billion of Chinese goods from 10 percent to 25 percent. The story continued to play out during the week as the president accused China of reneging on their agreement. Despite the accusations, Liu He, a top Chinese trade official, and his team met with U.S. trade officials in Washington. The discussion did not do much to ease recent tensions.
• Those sectors hit hardest were technology, materials, and industrials. The top performers were consumer staples, energy, and REITs as investors flocked to safer assets.
• Last week was very quiet on the economic update front. On Thursday, the Producer Price Index showed 0.2-percent growth in April, leading to a 2.2-percent annual growth rate.
• On Friday, the Consumer Price Index showed 0.3-percent growth in April and 2-percent annual growth.

Source: Bloomberg

Source: Morningstar Direct

What to look forward to
This week is a busy one for economic news, including looks at retail sales, consumer confidence, and the housing sector.

The data releases start on Wednesday with the retail sales report. The headline index is expected to show a gain of 0.2 percent for April. This would be reasonably healthy, although down from a rebound gain of 1.6 percent in March due to a decline in auto sales. The core index, which excludes autos and is a better economic indicator, is also expected to moderate, but by less. It should drop from a 1.2-percent gain in March to a still very strong 0.7-percent gain in April. If the numbers come in as expected, it would keep the short-term trend in positive territory. It would also likely signal significantly stronger growth in spending in the second quarter after a weak first quarter.

Also on Wednesday, the industrial production report will be released. It is expected to improve from a small decline of 0.1 percent for March to flat for April, as a drop in utility production from unseasonably warm temperatures was offset by higher oil production and an improvement in manufacturing. Manufacturing is also expected to improve, from flat in March to a gain of 0.1 percent for April. Although the expected rebound would be welcome, it would still leave both reports down over the past couple of months.

For the housing sector, the National Association of Home Builders will release its industry survey on Wednesday. It is expected to rise from 63 in April to 64 for May. This reflects rising confidence in the homebuilding market on improving sales of new homes. On Thursday, the housing starts report is expected to show similar improvement, with an increase from 1.14 million in March to 1.22 million starts for April on an annualized basis. Such an improvement would indicate the housing market is stabilizing after a slowdown. This would be consistent with the rise in affordability and would be a positive economic indicator.

Finally, the University of Michigan consumer confidence survey, released on Friday, is expected to increase slightly from 97.2 in April to 97.8 in May. There may be some downside risk here, as gas prices have risen, and the recent stock market turbulence may weigh on confidence. If the number comes in as expected, this would be well above the historical average and serve as a counterweight to the weaker results from the recent Conference Board surveys.

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®