Week of June 6, 2016
Domestic markets ended last week with a whimper following renewed concerns over the trajectory of the U.S. economy. The S&P 500 was flat for the week while the Dow Jones Industrial Average dropped 0.37%. The tech-heavy NASDAQ Composite ended the week up 0.18%.
Internationally, Europe broadly traded down last week and Japan's Nikkei 225 Average was off more than 1.1%.
The S&P 500 was approaching a seven-month high as investors heavily anticipated May's jobs report figures last Friday. However, the dismal report prompted our domestic markets to open down but ultimately close flat. U.S. companies dramatically slowed their hiring in May, creating only 38,000 new jobs compared to the market's expectation of 158,000 and marking the weakest job growth since September 2010. The biggest driver was the Verizon Communications strike that saw 37,200 employees drop off payrolls. Even after adjusting for that specific event, payrolls were still uninspiring. Furthermore, the labor department revised April and March figures lower for a combined 59,000 fewer jobs. Despite May's report and the revisions, the unemployment rate actually decreased to 4.7% as the share of workers participating in the workforce fell 0.2% to 62.6%. This will likely dampen chances of the Federal Reserve raising rates, further reinforcing our belief that the Fed will refrain from making a move in June.
Oh No, OPEC
Last week's OPEC meeting could have gone better. The oil cartel is famous for pulling its members together to cut production and increase the price of oil but their meeting last Thursday ended with a stalemate. Indeed, investors and even OPEC's own member states are starting to question their efficacy in reaching deals with other producers. The organization's public interactions with Iran have only served to fuel this narrative. Iran, now free of most international sanctions, ramped up production and has indicated that they do not intend to trim it back. Offsetting the sour news was data released showing a drop in U.S. inventories of 1.4 million barrels. Producers are more than 12 months into cutbacks and it appears their actions are finally cutting into massive oversupply. Despite this, U.S. inventories are hovering around 80-year highs. Oil retreated from its 2016 high the end of May to close the week down on the aforementioned data, sour jobs report and concerns over the U.S. economy.
Investors in emerging markets equities have certainly seen some highs and lows this year. The MSCI Emerging Markets Index, an index that tracks some of the largest stocks in countries such as China, Russia, Brazil and India, is up just 1.65% year-to-date but that doesn't tell the whole picture. The benchmark plummeted in the first month of the year, touching -13.3% before rebounding a staggering 20.8% in three months to hit 7.5%. Interestingly, the biggest winners are actually some of its smallest constituents with the top 10 performing stocks year-to-date making up less than 0.65% of the benchmark as of this writing. Perhaps not surprisingly, the best performers are predominately mining companies, benefitting from the run-up in gold prices earlier in the year. Chinese companies have been the laggards with nearly 75% of Chinese companies in the index posting negative returns as of this writing.
Source: Morningstar Direct
Fun Story of the Week
Have you ever wondered why the dime, worth 10 cents, is tiny in comparison to the nickel, worth half as much? Coins were first minted by the U.S. Mint back in 1793 when the standard coin was one U.S. silver dollar. To keep things simple, the mint would make smaller coins with proportionate amounts of silver. A quarter contained 25% of the silver found in a dollar and a dime, 10% and so on. The dime was created first and then the nickel. However, the nickel, originally called the half-dime, contained 1/20th the amount of silver as the dollar and was ultimately deemed too small. In response, the mint created today's version of the five cent piece back in 1866 which includes copper and nickel rather than silver. Interestingly, and not really surprising, it costs the U.S. government more than nine cents to produce a nickel.
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This newsletter was written and prepared by CWM, LLC.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets. The fast price swings in commodities and currencies will result in significant volatility in an investor's holdings.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI EMERGING MARKETS INDEX
The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The MSCI EM Index consists of the following emerging market country indices: Brazil, Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa, Turkey, United Arab Emirates, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand.
NIKKEI 225 AVERAGE INDEX
The Nikkei 225 Average Index is a Japanese index that tracks the top 225 companies listed on the Tokyo Stock Exchange. It includes the most liquid Japanese stocks listed in the first section of the Tokyo Stock Exchange. It is price-weighted and yen-denominated.
Financial Times, June 2016. https://www.ft.com/intl/cms/s/0/7acd0a38-286a-11e6-8ba3-cdd781d02d89.html#axzz4ASKr6A87
Wall Street Journal, June 2016. http://www.wsj.com/articles/u-s-added-only-38-000-jobs-in-may-1464957215
Wall Street Journal, June 2016. http://www.wsj.com/articles/oil-prices-flat-ahead-of-opec-meeting-1464843323
CNBC, June 2016. http://www.cnbc.com/2016/06/01/oil-prices-tread-water-ahead-of-opec-meeting.html
Wall Street Journal, June 2016. http://www.wsj.com/articles/opec-ministers-discuss-output-policies-1464859933
Infoplease, 2016. http://www.infoplease.com/askeds/nickels-bigger-dimes.html
Wikipedia, 2016. https://en.wikipedia.org/wiki/Nickel_(United_States_coin)