Weekly Market Update, June 12-16

Week of June 12-16, 2017

The S&P 500 was relatively flat last week, finishing with gains of 0.12%. The highlights of the week were the Fed meeting on Wednesday and a continued weakness in economic data.
The sector breakdown was relatively interesting last week. Industrials and utilities were the leading sector with gains of 1.65% and 1.56% respectively, while tech continued recent underperformance and fell 0.75%.

The 10-year interest rate decreased last week due to weak economic data, finishing the week down 5 basis points to 2.15%. The 10-year decreased by 10 basis points after the disappointing CPI and retail sales release on Wednesday morning. Core CPI was just 1.7%, its weakest reading since May 2015. Despite the weakness in inflation and other economic data, the Federal Reserve still increased interest rates by 25 basis points at its Wednesday meeting.
The Fed also detailed how it plans to begin unwinding its balance sheet later this year. The Fed will begin rolling off a maximum of $6bn of Treasuries per month and a maximum of $4bn of mortgage backed securities each month. The caps will increase every three months until they reached $30bn and $20bn respectively. The Fed says they plan on beginning this process later this year “provided that the economy evolves as broadly anticipated.”

The dollar finished nearly flat versus the euro last week, as it wiped out its post-CPI losses by gains during the Fed’s press conference as they detailed how they will remove balance sheet accommodation later this year. The story was very similar versus the yen, with the dollar finishing the week up 0.51% at 110.88.

Oil had its fourth straight weekly decline last week, falling by 2.38% to $44.74. The initial fall came from a report that both Libya and Nigeria recently increased oil output as they attempt to restart production that has been ravaged by war in their respective countries. The losses were compounded by another poor inventory report, as gasoline inventories built by much more than expected. US production resumed its increase after pausing last week and rigs increased again, marking their 49th increase in the last 52 weeks.

Next week is relative light on economic data. The existing and new home sales releases will be important in confirming or refuting the recent string of weak housing data.
In Europe, both the second round of the French parliamentary election and the beginning of Brexit talks highlight another busy week in the geopolitical realm.

Disclaimer: All data and comments are as of June 16, 2017