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Markets Advance Ahead of Memorial Day

Market Digest – Week Ending 5/23

The S&P 500 hasn’t moved much in either direction since mid-February, but the index quietly finished the week at an all-time high and closed above 1900 for the first time ever. Small cap stocks reversed their slide, gaining over 2%. Economic news was mixed, with a return to positive home sales growth viewed as encouraging. Presidential elections in Ukraine are scheduled for Sunday despite an uptick in violence this week. Putin said Friday that he will respect the results of the election, though many are skeptical.

Weekly Returns:

S&P 500: 1,901 (+1.5%)
FTSE All-World ex-US: (+0.5%)
US 10 Year Treasury Yield: 2.53% (+0.01%)
Gold: $1,293 (-0.0%)
USD/EUR: $1.363 (-0.5%)

Major Events:   

  • Monday – The Justice Department indicted five Chinese military officers, alleging they hacked U.S. companies’ computers to steal trade secrets.
  • Monday – AT&T will acquire DirecTV for $49 billion.
  • Monday – AstraZeneca rejected Pfizer’s takeover offer, seemingly ending the chances for the huge proposed merger.
  • Wednesday – Russia signed a deal to supply China with over $400 billion of natural gas over 30 years. It will also create massive joint infrastructure projects.
  • Thursday – Thailand’s military forcefully removed the nation’s elected government two days after declaring martial law.
  • Thursday – Hewlett Packard said it would cut an additional 11,000 to 16,000 jobs on top of 34,000 positions it previously said would be eliminated as part of a multiyear restructuring plan.
  • Friday – Russian President Putin said he will respect “the will of the Ukrainian people” in presidential elections this weekend and is willing to work with whoever is elected.
  • Friday – New US home sales rose 6.4%, the most in six months.

Our take:

A slow news week heading into a long weekend was a recipe for low volume in equity markets. Investors remain unenthusiastic about stocks, but with the 10 year Treasury rate hovering around 2.5% they can’t find an appealing alternative.

Earnings season is wrapping up, and corporate America managed to surprise to the upside once again. Absolute earnings growth was less than 2%, but after the terrible winter weather, expectations had been for a modest decline. We expect Q2 numbers to improve but remain unimpressive. Low single digit earnings growth won’t be enough to support stock prices if interest rates begin to rise, but so far we see no evidence they are.

Everyone talks about the certainty of rising interest rates, but these are the same people who have been wrong for years now. We believe caution is warranted when constructing a bond portfolio, but we don’t think now is the time to give up on stocks or bonds.

We wish you a happy Memorial Day weekend with our deepest appreciation for those it honors – the men and women who have died serving the United States Armed Forces.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

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