Stone's Weekly Market Guide - Week of June 3, 2018

The June 12 summit between N. Korea and the U.S. is back on again. Japan’s PM Abe visits President Trump with the summit and trade likely high on his list of topics. Italian politics should take a backseat this week with a coalition government being formed after an ugly start to last week. This avoids short-term issues for Italy, but the euroskeptics are in power and the interactions with the European Commission will need to be monitored as there still remains a possibility of another euro crisis brewing. Spain’s new PM Sánchez was sworn in after a corruption scandal doomed the previous administration, but his hold on power looks tenuous and the Catalan separatist issue has intensified again. Spain should hold less risk for the markets because their economic growth has bounced back since the financial crisis, unlike Italy’s economy.

U.S. data: April factory orders kick off a sparser week for data. May ISM Non-Manufacturing will likely provide another data point that the U.S. economy is strengthening. Markets continue to price in a 100% chance of a Fed hike on June 13. The Apple (AAPL) developers’ conference is being held. Estimates of U.S. economic growth in 2Q rose with both the Atlanta and NY Fed estimates moving higher to 4.844% and 3.26% respectively. The strong May U.S. jobs data last week just added to the evidence of a strengthening U.S. economy, while European and Japanese economic growth is cooling somewhat.

Chart of the Week: Is value really underperforming? The S&P 500 Value (SVX) index significantly underperformed the S&P 500 (SPX) for the past year. Looking at smart beta or factor value could paint a different picture though with both the iShares MSCI Value Factor (VLUE) and Alpha Architect U.S. Quant Value (QVAL) ETFs outperforming. Clues about the performance difference: each has their own methodology for measuring value, plus VLUE and QVAL have significantly fewer holdings than SVX. Those investing in value smart beta should do their due diligence. Disclosure: I currently own QVAL.

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