Stone's Weekly Market Guide - Week of June 24, 2018
Chart of the Week: Should commodities be part of your asset allocation? Stocks and bonds remain very highly correlated (see chart) and it is a good bet that higher yields (lower bond prices) may weigh on stocks at some point. As noted in a recent study, commodities futures since 1877 have provided positive returns and performed well in periods of inflation shocks and economic expansion. Bottom line: the addition of commodity exposure could benefit a diversified portfolio. Keep in mind that the S&P GSCI commodity index is heavily weighed to energy. Disclosure: the author currently owns iShares S&P GSCI Commodity-Indexed Trust (GSG).
Global trade spats likely to continue to hit the headlines. Tariffs between the U.S. and China are set to begin on July 6. The U.S. and European Union (E.U.) are trading threats around auto tariffs. The E.U. summit has a busy calendar focusing on trade disputes, E.U. immigration and Brexit.
The Fed releases part two of the bank stress tests on Thursday after part one showed U.S. banks having a strong capital position as widely anticipated. Part two is crucial for investors, since it focuses on capital plan approvals for additional dividends and stock buybacks.
U.S. calendar is busy with the highlights likely to be May durable goods orders along with personal income and spending. The third reading of 1Q GDP should hold steady at 2.2%. All signs continue to point to strong growth in 2Q. The Atlanta and NY Fed estimates of 2Q GDP are robust at 4.709% and 2.87% respectively.
Investors got a read on the momentum of the global economy with June manufacturing PMIs: U.S. fell to 54.6, while Europe fell to 55.0 and Japan rose slightly to 53.1. Europe continues to lose some momentum. The U.S. reading was below expectations, so the ISM PMI release on July 2 will be of more interest. All measures remain well above any threat of recession.
Last trading week of 2Q, so investors should expect some extra volatility as managers shift positions into the new quarter.
Upcoming appearance with the CFA Society of Philadelphia on Thursday, July 26
at 6:00 PM: Do collectibles belong in your investment portfolio? I will present my thoughts and research on the valuation of art, stamps, violins and wine. The presentation will have you thinking about how these "emotional assets" hold value over time and what other costs are associated with them. Click here to register.
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