With so much going on in the world, it’s hard to know what deserves your attention, so we narrowed it down for you. Here’s what we’re watching this week and why it matters. From the events that have market-moving potential to the indexes that will give you a glimpse into what’s on everyone’s mind, here’s what you need to know as we end June.
Interest Rates in the U.S. and Globally
On the heels of the most recent Fed Meeting – as well as comments from Mario Draghi, President of the European Central Bank, interest rates globally continued to fall. Ten-year U.S. Treasury yields fell to nearly 2.0%, the lowest level since the 2016 U.S. elections.
Consumer Confidence Index
Consumer spending drives about two-thirds or more of the U.S. economy and a “confident consumer” tends to spend more freely. The index is on the rise from 129.2 in April and 134.1 in May and nears its highest levels in two decades. This indicates that the average American consumer believes the economy will remain strong; however, people are typically most optimistic when indexes are nearing records.
GDP always matters. While it’s a backward looking number, it’s an indication of the relative strength (or weakness) in the overall U.S. economy. The last GDP revision was 3.1% in Q1. If the GDP starts trending lower in Q2 it is likely due to companies looking to avoid tariff uncertainties.
Pending Homes Sales
Spring is important for home sellers and buyers. Housing generally contributes somewhere between 15% to 18% of GDP, according to the U.S. Bureau of Economics. U.S. existing-home sales rose in May, which the Wall Street Journal described as “a sign that falling mortgage rates could be nudging the housing market toward a modest spring performance after a sluggish start to this prime selling season.”
Q2 Ends Friday
Q4 of 2018 and Q1 of 2019 were two sides of a volatile coin. The S&P 500 Index (SPX) was lower than the previous quarter by 13.97% in Q4 2018. In Q1, the SPX was higher than Q4 by 13.07%. Going into the final week of Q2, the S&P 500 is up 4.08% since April 1. The previous two quarterly returns were the highest since Q3 of 2011 when the index declined by 14.33% on European Sovereign debt concerns and the only U.S. debt downgrade. This is a big week for many asset managers who are evaluated relative to their benchmark on a quarterly basis.
The annual FTSE Russell Reconstitution will be complete next Friday. The newly reconstituted index will take effect after the close on June 28. The Russell U.S. Indexes are designed to reflect the U.S. equity markets, which are constantly changing. The reconstitution process ensures that the Russell indexes continue to accurately represent the U.S. equity markets, which are constantly changing. According to the FTSE Russell website, “The breakpoints between large, mid- and small-cap are redefined to ensure market changes that have occurred in the preceding year are captured.”
For more information visit https://www.ftserussell.com/resources/russell-reconstitution
The Cboe Volatility Index (VIX Index), recognized as the world’s premier gauge of U.S. equity market volatility, fell to its lowest level since early May on June 20. The VIX Index has an average close of 15.81 through June 20, 2019. The average in 2018 was 16.64. As a result, hedges for VIX derivatives expiring in Q3 or Q4 may be less costly than they were coming into the year or even one month ago. Learn more about the VIX Index at www.cboe.com/vix
Bonus: The S&P 500 (SPX) is at or very near all-time highs. Historically, July tends to be the best month of the year for the S&P 500 Index with an average July gain of 1.6% (1928-2018).
Source: Yardeni Research