Markets were mixed last week as macroeconomic and geopolitical developments continued to dominate headlines. On Wednesday, the Federal Reserve raised interest rates and plotted a slightly more aggressive timeline for future rate hikes. In doing so, the committee noted that “economic activity has been rising at a solid rate.” On Thursday, the European Central Bank announced plans to end its bond-buying program in December. The move signaled the beginning of the end of extraordinary monetary policies that helped revive growth and reduce unemployment in the Eurozone economy. Tuesday’s Singapore summit between President Trump and North Korean leader Kim Jong Un yielded mixed messages; proponents highlighted the prospect of improved relations for regional security while detractors noted a lack of specifics on denuclearization. Subsequent negotiations will reveal the lasting impact of the first-ever meeting between the two heads of state. The détente with North Korea immediately followed an acrimonious G7 summit in Canada; the meeting concluded with the U.S. refusing to sign the joint communique. Finally, on Friday, the Trump administration announced tariffs on $50 billion of Chinese industrial and information technology products; China responded with plans for reciprocal duties against U.S. farm and energy imports. The tit-for-tat dispute heightened fears of a global trade war.
The macroeconomic and geopolitical developments have largely overshadowed strong economic and corporate fundamentals. Small business optimism rose to its second highest level in the report’s 45-year history; and, retail sales surged in May on broad-based gains across restaurants, building materials, department stores, and clothing stores. On Tuesday, the U.S. District Judge ruled in favor of AT&T’s acquisition of Time Warner. Not surprisingly, Consumer Discretionarystocks outperformed for the week; companies such as CBS, DISH Network, and Charter Communicationsrose on the prospect of increased merger and acquisition activity in the media industry following the judgment. Indeed, on Wednesday, Comcastannounced a competitive bid for certain assets of Twenty-First Century Fox, which agreed last year to a transaction with Walt Disney. Energy stocks, meanwhile, underperformed as investors anticipate this week’s meeting in Vienna between OPEC and non-OPEC producers, including Russia. The oil-producing nations will debate maintaining the status quo on production levels or increasing output. Rising oil prices have provided a revenue boon for state-run operators while also attracting increased production from alternate sources, primarily U.S. shale. Therefore, the meeting will likely determine the near-term direction for oil prices and, by extension, shares of Energy and energy-related Industrialsstocks.
Source: Pacific Global Investment Management Company
