The Nasdaq led the major indexes with a gain of 1.45 percent this week. Consumer discretionary pulled the index higher after a judge approved the AT&T (T) Time Warner (TWX) merger. The decision opened the door to further consolidation in the media and telecom industry. Comcast (CMCSA) immediately announced a $65-billion offer for Fox assets, topping the prior bid from Disney (DIS). Fox may postpone a planned shareholder vote on Disney’s offer. Netflix (NFLX), the third largest holding in SPDR Consumer Discretionary (XLY), rallied nearly 10 percent to a new all-time high as a result. XLY gained 2.24 percent on the week.
Consumer inflation met expectations and producer inflation growth was faster than expected. Jobless claims fell to 218,000 last week and the number of people on unemployment fell to a 43-year low. Retail sales beat expectations in May, rising 0.8 percent and 0.9 percent ex-autos. The University of Michigan consumer confidence survey for early June increased and the NFIB small business index showed optimism at its highest since 1983. The Atlanta Federal Reserve’s GDP Now model hiked its second-quarter GDP forecast to 4.8 percent.
The Federal Reserve hiked interest rates as expected this week. The accompanying economic and interest rate projections showed a majority of Federal Open Market Committee officials expect two more rate hikes in 2018. The odds of four rate hikes this year climbed above 50 percent in the futures market.
The European Central Bank will end its quantitative easing program at the end of 2018, as expected. However, ECB chief Mario Draghi sent the euro sliding after he said interest rates would remain unchanged until at least the middle of 2019. With European economic data weaker than the U.S., traders and economists are skeptical.
The ECB pushed the U.S. Dollar Index to a new high for 2018 and near a 52-week high. SPDR S&P 500 (SPY) returned 0.07 percent on the week, while iShares MSCI EAFE (EFA) fell 0.57 percent and iShares MSCI Emerging Markets (EEM) slid 2.33 percent. European stocks rallied following the ECB meeting. WisdomTree Europe Hedged Equity (HEDJ) gained 1.80 percent on the week, while iShares EMU Index (EZU) saw a much smaller increase of 0.23 percent.
President Trump announced tariffs on $50 billion worth of Chinese imports on Friday. China responded with $50 billion in tariffs on U.S. goods. Soybeans, a major Chinese import form the U.S., have fallen over the past two weeks in anticipation of the move and hit a 52-week low on Friday. Some industrial shares with exports to China, such as Boeing (BA) and Caterpillar (CAT) underperformed on the day.