The major U.S. benchmarks were flat to lower for the week. The narrowly focused Dow Jones Industrial Average performed the worst, hurt by its heavier concentration of export-sensitive industrial firms and exporters.
U.S. Markets: The major U.S. benchmarks were flat to lower for the week. The narrowly focused Dow Jones Industrial Average performed the worst, hurt by its heavier concentration of export-sensitive industrial firms and exporters. The Dow Jones Industrial Average fell 509 points to close at 24,580, a loss of -2%. The technology-heavy NASDAQ Composite gave up 53 points and closed at 7,692, a loss of -0.7%. By market cap, smaller companies that are primarily domestically-focused fared the best with the small cap Russell 2000 rising 0.1%, while the large cap S&P 500 and mid cap S&P 400 declined -0.9% and -0.1%, respectively.
International Markets: Canada’s TSX managed a third consecutive week of gains by gaining 0.8%. Across the Atlantic, the United Kingdom’s FTSE 100 retraced last week’s loss by rising 0.6%. Markets on the European mainland did considerably worse: France’s CAC 40 fell -2.1%, Germany’s DAX gave up -3.3%, and Italy’s Milan FTSE declined -1.4%. In Asia, China’s Shanghai Composite plunged -4.4%, which was its fifth consecutive decline. Japan’s Nikkei was also down, falling -1.5%. As grouped by Morgan Stanley Capital International, developed markets ended the week down -1.2%, while emerging markets declined a larger -2.3%.
Commodities: Precious metals had a second week of losses with gold giving up -0.6%, or $7.80, to end the week at $1270.70 an ounce. Silver declined just -0.1%, closing at $16.46 an ounce. Energy rebounded strongly after four consecutive down weeks. West Texas Intermediate crude oil surged over 5.4%, ending the week at $68.58 per barrel. Copper, seen by some analysts as a barometer of global economic health, fell for a second straight week, losing -3.7%.
U.S. Economic News:
The number of Americans seeking new unemployment benefits fell for the fourth week in row as layoffs remained near their lowest levels since the early 1970’s. The Labor Department reported initial claims for unemployment declined by 3,000 to 218,000 in the week ended June 16, in line with economists’ forecasts. The more stable monthly average of new claims dropped by 4,000 to 221,000 - just slightly above a 45-year low.
Other Economic News:
Even as the global economy picks up speed, China’s central bank said trade disputes, geopolitics, and monetary policies of major economies are the key uncertainties – and potential negatives - in its economic outlook. The comments come as concerns have been mounting that growth in the world’s second-biggest economy is cooling faster than expected. In addition, an intensifying clash with the United States is adding to the difficulties. Both sides announced tariffs on $50 billion of each other’s products last week and President Trump threatened to impose another $200 billion on Chinese goods. Official economic data for last month showed that growth in key areas like exports, investments by companies, and consumer spending all declined compared to the same month a year ago. The numbers "suggest a broad-based slowdown is now emerging, and we expect this to continue," said Louis Kuijs, head of Asia economics at research firm Oxford Economics.
Finally: As the bull market in equities enters its ninth year, investment strategist Jim Paulsen at the Leuthold Group recently released a research note in which he pointed out that the % of market cap represented by the “defensive” sectors has reached a multi-decade low, now lower even than at the peak of the dot-com bubble. This is a sign of lop-sided investing in which speculative investments are concentrated in a few areas of the market (like the current pursuit of the FANG stocks (Facebook, Amazon, Netflix and Google)), and other areas are left for dead.
Paulsen writes “More and more of the leadership stocks have been the more aggressive, high beta stocks and a lot of the defensive names have been left for dead. They've diminished as far as their size of the overall [S&P 500] index.” His advice to those investors holding little more than the FANGs? Pat yourself on the back and congratulate yourself for a great investment, and then “maybe buy a beat-up consumer staple or utility here or pharma stock today that no one is taking a look at, but sells at a much better value." (Chart from cnbc.com)