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Equity markets finished this holiday shortened week at new all-time highs with everything outside of the energy patch participating. Meanwhile, yields moved decidedly lower on the back of an unexpectedly weak May jobs report. The commodity complex, led by crude oil had another difficult week, despite OPEC’s efforts to engineer a price increase.

Weekly Anecdotes:

• A final earnings check from FactSet (99% of the companies in the S&P 500 have reported) has 75% beating the mean EPS estimate and 64% beating the mean sales estimate. The blended 1Q earnings growth rate was 13.9%, which is the highest (year-overyear) earnings growth for the S&P 500 since Q3 2011 (16.7%).
• An interesting note on volatility is that the VIX has closed below 10.0 fourteen times in history. Six of those fourteen times have occurred this year.
• The U.S. dollar weakened again last week by 0.75% against a trade weighted basket and is off 5.38% on the year. The weak dollar has provided a noticeable lift to companies with a higher degree of non-U.S. revenue sources. On the year, the Euro is +7.3%, the Yen is +5.86%, and most emerging market currencies are strengthening as well.
• Fed funds futures are pricing in a 91% probability of a 0.25% rate hike at next week’s FOMC meeting on June 14th.
• The remarkable run-up in debt since the financial crisis prompted Moody’s to downgrade China’s sovereign debt a notch last week. Chinese authorities have taken steps to curtail leverage in the banking sector which has pushed lending activity to the system’s shadow lenders.
• Brace for another U.S. congressional debt ceiling controversy. The latest suspension of the debt ceiling expired in March and it looks like the Treasury may need more wiggle room by August, requiring action by Congress.

Economic Updates:

• The May jobs report, 138,000 of new jobs, missed expectations by a wide margin and was the second lowest print since October. The three-month average payroll growth is down to 120,000, the slowest since July 2012. March and April figures were both revised downward as well. Regardless, unemployment rate fell to a 16-year low rate of 4.3% and amid 117 consecutive weeks of sub-300,000 jobless claims.
• Markit’s initial U.S. services PMI rose to a 4-month high in May, suggesting a healthy U.S. service sector will maintain itself for the foreseeable.
• The ISM manufacturing index was little changed at a fairly healthy level in May. • Case Shiller home price data suggested the housing market remained on firm ground with national prices up 5.75% year over year - close to where they have been running for the past two years.
• Consumer confidence has served as a strong underpinning to the housing market. Confidence figures saw their first back to back drop since May 2016 but at 117.9, remain well above long term average level of 93.8.
• 85% of manufacturing PMIs have positive momentum across the 46 ACWI global markets and 91% are above their rising 200-day moving averages.

  • JUST ONCE BEFORE - The ongoing bull market for the S&P 500 stock index will reach 99 months in length (i.e., 8 years and 3 months) as of the close of trading this Friday 6/09/17. The stock market advance is just the 2nd bull out of 11 total bulls since 1950 to reach 99 months in length. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. It is a market value weighted index with each stock’s weight in the index proportionate to its market value (source: BTN Research).
  • YEAR-TO-DATE – The S&P 500 was up +8.7% YTD (total return) as of the close of trading on Wednesday 5/31/17 (the index was up +3.6% at the same point in 2016). The split between “up” days and “down” days YTD through 5/31/17 is 55/45, i.e., more “up” days than “down” days so far this year (source: BTN Research).
  • THE REALLY RICH - The top 0.1% of US taxpayers (i.e., top 1 out of every 1,000 taxpayers) paid 19.9% of all federal income tax for the 2014 tax year (source: Internal Revenue Service).
  • JUST NOT WORTH IT - 23% of Millennials who have student debt believe the college education they received “will never be worth” the debt they incurred. “Millennials” are defined as the 75 million Americans ages 20-36 in 2017, i.e., individuals born from 1981-1997 (source: TD Ameritrade).
  • NO RECESSION HERE - The current economic expansion in the United States will reach 8 years in length as of 6/30/17. No expansion in history has lasted longer than 10 years based upon data that has been tracked since 1854 (source: National Bureau of Economic Research).
  • NEW MATH - The 10-year budget forecast released by the Trump White House on 5/23/17 boasted that it would reduce our deficit by $5.6 trillion “compared to the current fiscal path.” The math behind the statement is that the Trump plan would reduce the current $8.8 trillion of deficits projected over the 10 fiscal years of 2018-2027 by $3.6 trillion through reduced spending and by another $2.0 trillion due to the “anticipated economic gains that will result” from the plan. The net result: $8.8 trillion of deficits are reduced to $3.2 trillion of deficits (source: OMB).
  • BIG NUMBER - Medicaid expenditures make up 17% of state spending on average today, up from just 12% of state spending in 2010 (source: Medicaid).
  • WHAT TO CHARGE NEXT YEAR? - Health insurance companies have a 6/21/17 deadline for the submission of a “qualified health plan” (QHP) application for participation in 2018 ACA exchanges. The application must include 2018 health insurance premium rates (source: Centers for Medicare and Medicaid Services).
  • AFFORDABLE - The ACA is expected to provide payments of $7.35 billion to health insurance companies in 2017 in “cost-sharing reduction” (CSR) payments. These payments are separate from the estimated $35 billion in “income-based” subsidies (technically a “premium tax credit”) provided in 2017 to help individuals afford their ACA monthly premiums (source: Commonwealth Fund).
  • HOT AND COLD - The best performing individual stock in the S&P 500 index during the first 5 months of 2017 (i.e., January-May) gained +68%. The worst performing individual stock in the S&P 500 during the first 5 months of 2017 lost 61% (source: BTN Research).
  • KEEPS ME UP - 60% of 2,652 full-time employees surveyed in November 2016 “worry about money.” 30% of those surveyed “lay awake at night” worrying about money (source: MetLife Employee Benefit Trends Study).
  • ALMOST HALF - 47% of 2,749 adults surveyed in February 2017 have at least $25,000 of debt, not counting any mortgage debt they have on their home (source: Northwestern Mutual Planning & Progress Study 2017).
  • THEY CUT BACK, WE INCREASED - US oil producers stepped up their “field production” of crude oil by +645,000 barrels a day (to 9.34 million barrels a day) over the 6 months from 11/30/16 to 5/31/17. The increased output was in response to a 1.8 million barrel a day cutback announced by 24 oil producing countries on 11/30/16 (source: Department of Energy).
  • REDUCE SUPPLY, INCREASE THE PRICE - 24 oil producing countries, including all 13 OPEC members, agreed on Thursday 5/25/17 to maintain what amounts to a 2% cut (i.e., 1.8 million barrels) in the global daily production of oil through March 2018 in an attempt to drive up the price of crude oil. The oil production cuts were first announced on 11/30/16 (source: OPEC).
  • RUBBER MATCH – It’s Cleveland vs. Golden State for the NBA title for the 3rd consecutive year, the first time that has happened in NBA history. From 1984-87, the Celtics and the Lakers met in 3 of 4 years (source: NBA).

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