Weekly Market Performance – Market Rally and Rebound
U.S. and International Equities
The major US markets reversed course from last week and ended the week higher as market participants stepped in to take advantage of last week’s selloff. International markets (MSCI EAFE and MSCI EM) rebounded as well and both had a strong week. All sectors had a positive week. Notable sector leaders this week were energy and financials, the two best performing sectors this year, respectively.
U.S vs. International Stock Valuations
U.S. stock valuations are well above developed international (MSCI EAFE) and emerging markets (MSCI EM) price-to-earnings ratios (PE) trading at nearly 22 times the next 12 month’s consensus S&P 500 earnings estimate (source: FactSet). The present gap between the U.S. and developed international valuations has expanded further recently, with the MSCI EAFE Index now priced at an almost 25% discount to the S&P 500, which is the largest disparity in 30 years. The story is similar for emerging markets, with the MSCI EM Index trading at over a 30% discount to U.S. stocks, which is the largest discrepancy since the mid-2000s.
Fixed Income Recap
The Bloomberg Barclays US Aggregate lost ground for the second week in a row as yields increased. Many fixed income sectors moved in lockstep. High yield bonds gained ground this week as credit spreads tightened. Both the corporate and muni high yield sectors continue to outperform in what has, so far, been a down year for many fixed income categories.
Commodities rebounded this week following last week’s selloff. Oil and natural gas remain bright spots, returning over 3% and 8% this week respectively, with West Texas Intermediate (WTI) crude solidly surpassing the $74 mark this week. Copper climbed over 4% this week, rebounding from recent declines.
Recently, chief executive officers of some of the world’s largest oil firms stated that crude prices are likely to keep increasing due to a lack of investment that will diminish future supply. While a self-interested outlook, they also predicted that oil could go as high as $100 per barrel, even though it was admitted that volatility in these markets could also drive prices back down.
“This week, investors certainly seemed to shake off last week’s Fed uncertainty and stepped right back into the equity market with both feet,” explained LPL Research Senior Vice President and Director of Research Marc Zabicki. “Treasury yields trickled higher and U.S. equities lead gains across the globe, while economic data remained favorable.”
U.S. and International Economic Data Recap
Eurozone business growth increased at its quickest pace in 15 years as the loosening of lockdown rules helped increase demand for goods and services. Services, as well as consumption, are both witnessing a resurgence and are now the major drivers of European economic growth. As in the U.S., supply disruptions and rebounding demand have added to transitory inflation pressures.
Core Personal Consumption Expenditure Inflation
Personal consumption expenditure (PCE) prices, the Federal Reserve’s (Fed) preferred measure of inflation, increased 0.5% month over month and over 3.0% year over year, both roughly in line with economists’ consensus expectations. Despite the increase in PCE prices, the absence of an upside surprise may provide some consolation that inflation may, in fact, be transitory.
May Home Sales
Home sales in the U.S. increased in May at its fastest pace on record and reached a new high. That being said, rising home prices and low inventory are driving would-be buyers out of the market. The median existing home price in May was over $350,000, which was up almost 25% from May 2020. Moreover, last month’s home value increase marks over 100 straight months of year-over-year price gains.
Initial Jobless Claims Climb Back Above 400k
According to the U.S. Department of Labor, initial filings for unemployment benefits increased for the first time since April, with over 410,000 Americans filing claims. A consensus of Bloomberg-surveyed economists expected 360,000 new filings. At the same time, continuing claims fell to a post-pandemic low of 3.39 million. Continuing claims continue to show clear improvement, but remain elevated above the early March 2020 levels of approximately 1.7 million.
Next week, the following economic data is slated to be released:
Tuesday: April Federal Housing Finance Agency (FHFA) home price index, April Case-Shiller home price index, June consumer confidence index
Wednesday: June ADP employment survey, May pending home sales
Thursday: Weekly initial and continuing claims, June Markit manufacturing Purchasing Managers Index, May construction spending, June Institute for Supply Management manufacturing survey
Friday: June unemployment report, May factory and durable goods orders and trade balance
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