High Yield Returns Turn Positive- 10-year Treasury Yield Remains Below 3%
- Next Week Potentially Eventful
After last week the NASDAQ is up close to 11% for the year, the Dow Jones Industrial average rose 2.77%, and the S&P is up 3.94% for the year. It was a strong week for the domestic equity markets. Many explanations have been offered up in the financial press for the strong move up last week. The week wasn’t particularly newsworthy but perhaps investment managers tired of the relentless negativity and back-and forth on trade and geopolitical issues and realized that market fundamentals are pretty good and actually continue to improve domestically. Preliminary data provided by FactSet now call for earnings growth on a year over year basis of 19% in the second quarter. If achieved, it would be the second-best growth rate in seven years. Much like investors becoming increasingly unimpressed with the positivity of Q1 earnings they have become numb to the news flow out of Washington.
The yield on the 10-year Treasury bond remains under 3% and the broad bond market return for the year remains negative. That said, the Barclay’s Capital High Yield Total Return Index actually turned positive last week and has returned of .28% for the year. Returns on cash equivalents also continue to move higher with the rise in short term interest rates.
Next week may prove to be especially noteworthy with the conclusion of the G-7 summit on Monday; Trump’s anticipated meeting with North Korean president Kim Jung-un on Tuesday; a FOMC decision on interest rates on Wednesday, and the European Central Bank (ECB) meeting on Thursday. The FOMC is widely expected to raise short term rates by .25%. Most of the attention will be paid to Powell’s press conference and the Fed’s outlook. Prognostications on the amount and speed of monetary tightening by the Fed will ensue.
The economic calendar includes (as mentioned above) the FOMC decision on short term rates on Wednesday, and producer prices are released. Friday consumer sentiment numbers are reported by the University of Michigan, and industrial production numbers for May are posted.
For all intents and purposes earnings season for Q1 is complete. A few companies report next week - including:
Tuesday – Lands’ End
Thursday – Adobe Systems, Jabil
Indices for the week and YTD are as follows:
S & P 500 up 1.62% for the week; YTD index return is 3.94%
NASDAQ Composite up 1.21% for the week; YTD index return is 10.75%
Dow Jones Industrial Average up 2.77% for the week; YTD index return is 2.42%
Benchmark 10-year Treasury bond yield stands at 2.95% - essentially flat for the last two weeks.
