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The Market Brief: Volatility Returns; Tariffs Expire; Consumer Spending Tops Estimate

The Market Brief: Volatility Returns; Tariffs Expire; Consumer Spending Tops Estimate

| May 31, 2018
  • Tariff Concerns Resurface.  Stocks fell and Treasurys gained after Commerce Secretary Wilber Ross said the U.S. will not extend the temporary tariffs exemptions for steel and aluminum imports from Canada, Mexico and the European Union. The exemptions expire at midnight tonight.
  • Fewer Jobless Claims.  New jobless claims declined more than expected last week, while corporate-announced job cuts in May declined by 4.8% YoY.
  • Personal Incomes & Outlays. Consumers’ income rose by 0.3% in April, while spending topped forecasts (0.6% vs. 0.4%), the biggest increase in five months. Meanwhile, the Fed’s preferred price gauge rose 2% YoY for a second month, while core prices rose 1.8%.
  • Chicago PMI Blasts Higher. The Chicago-area PMI that tracks business activity surged to 62.7 for May (58.4 expected, 57.6 prior), while April pending home sales fell 1.3% amid high prices and short supply. 
  • Treasurys Inch Higher. The U.S. Dollar weakened a second day, while gold and Treasurys edged higher, sending the yield on benchmark 10y Treasury notes slightly lower.

Sector Performance

At press time, 10 of the 11 major sectors are trading lower, with Consumer Staples, Telecom and Industrials down the most. Utilities are outperforming.

Overnight Trading

China’s Shanghai Composite rebounded (+1.78%), Hong Kong’s Hang Seng Index gained 1.37% and Japan’s Nikkei 225 Index rose 0.83%. China’s factory activity PMI outpaced expectations, despite ongoing trade tensions.

Key Commodities

Gold futures climbed higher, while WTI crude oil prices declined back below $68/barrel.

Recapping the Previous Business Day

  • Stocks Bounce Back. The S&P 500 more than erased all of yesterday's sharp decline after a Reuters report said Italy’s populist “Five Star” group wants its previously endorsed candidate for finance ministry to be withdrawn. That could break the deadlock between populists and the President, allowing a new government to be formed.

    •Oil Bulls Get Reprieve. Crude oil futures climbed over 2% for its first daily gain since May 21 following news that OPEC and Russia would keep production cuts in place until at least the end of the year. 

    Economic Data.  First quarter GDP was revised slightly lower (2.2% vs. 2.3%), while private-sector hiring increased by 178,000. The goods-based U.S. trade deficit unexpectedly narrowed in April to the lowest since October 2017. 

    Treasurys Retreat.  The U.S. Dollar slid 1% vs. the euro to 1.1655 after previously reaching a nearly 10-month high. Treasurys retreated on the easing of Italian turmoil, sending 10-year yields up 7.4 basis points to 2.856%.

 Top Three Sectors

Energy (+3.12%), Financials (+1.96%) and Healthcare (+1.38%).

Bottom Three Sectors

Technology (-0.73%), Utilities (-0.77%) and Telecom (-0.77%).

The views depicted in this material are for information purposes only and should not be considered specific advice or recommendations for any individual. All investing involves risk, including the possible loss of principal.  There is no assurance that any investment strategy will be successful. Indices are unmanaged and cannot be invested into directly. Past performance is not indicative of future results.