Geopolitics took center stage this week. The diplomatic crisis in Qatar, a terror attack in London, parliamentary elections in the United Kingdom, and former FBI director James Comey’s testimony all moved investment prices. Global markets weathered the barrage fairly well. The S&P 500 fell 0.3%. The MSCI All Country World Index slid 0.5% and the Bloomberg BarCap U.S. Aggregate Bond Index edged 0.2% lower.
Some markets experienced particularly wide swings on the news. The MSCI Qatar Index, which is designed to measure the performance of the large and mid-cap segments of the Qatari market declined more than 8%. In the U.K., the snap elections resulted in a hung parliament, adding more chaos to Britain’s Brexit negotiation. The British Pound moved sharply lower on the unexpected result. On the other hand, James Comey’s testimony was interpreted as a positive for President Trump and some U.S. sectors rallied on resurgent hopes of tax and regulatory reform. Financial stocks and small caps rallied during the week and technology stocks experienced a sharp sell off on Friday, as some investors took profits in this year’s stronger performing sector.
Oil prices have been volatile, reacting to the rift in the Middle East and the sudden spike in U.S. inventories this week. While oil prices have dipped, demand for skilled workers remains high and difficulty in finding qualified workers is curtailing some firm’s growth plans.
What are we reading?
Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links:
Saudi Arabia’s diplomatic shift towards Qatar is generating headlines as well as volatility in oil prices. Crude prices have already been under pressure amid concerns that an extension of OPEC’s cuts may not be enough to clear the supply glut given the expanding U.S. output. The current crisis represents a challenge for the US. Both Saudi Arabia and Qatar are US allies and contain key US bases.
US job markets are tightening with a record 6 million jobs open at the end of April. However, the data underscore the difficulty employers may be facing in finding qualified applicants. A shortage of workers can restrain growth or increase inflationary pressures. When the labor market becomes too tight there is more cause for the Fed to increase rates.
British Prime Minister Theresa May failed to win a parliamentary majority in the U.K. election. She called the elections with the hope of strengthening her support ahead of Brexit negotiations, but now is forced to find a collation partner and shore up support in her own party to remain in office.
Fun Story of the Week
Anybody want to buy a bank? Santander Buys Banco Popular for One Euro
Banco Popular, a mid-sized Spanish lender was put up for auction this week when depositors drained the bank of too many assets and it was forced to be sold. Banco Santander, the third largest bank in Spain with operations across Europe, was the only bank who bid. They bid €1 or about $1.13. Please note that they didn’t bid €1 per share, but €1 for the whole bank. Before you think you could have bid €2 and have become the proud owner of Spanish bank, keep in mind that Santander will also be raising €7 billion in order to cleanup Banco Popular’s €37 billion in foreclosures and other nonperforming assets. Maybe they didn’t get it so cheap after all.
This newsletter was written and produced 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. The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
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 ACWI INDEX
The MSCI ACWI captures large and mid-cap representation across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.