The Russell 2000 Index hit a new all-time high this week and the Nasdaq closed within 0.5 percent of its all-time high. The Nasdaq led major indexes with a gain of 1.78 percent. Technology was the best performing sector. SPDR Technology rallied 2.41 percent. SPDR Energy (XLE) rose 1.92 percent.
May’s employment report beat expectations with 223,000 net new jobs. The unemployment rate fell to 3.8 percent. There were 905,000 new full-time jobs created, a record for this Millennium. Wage growth beat expectations, hitting 0.3 percent in May and 2.7 percent in the past year. Education, healthcare, retail and construction were among the sectors with the most job creation.
Strong employment data lifted the 10-year Treasury bond yield to 2.90 percent. The 30-year finished at 3.05 percent. Both yields were down on the week.
Home prices increased 6.5 percent on the year (through March 2018) according to the Case-Schiller index. Consumer confidence rose in May according to the Conference Board’s survey. Current confidence hit a 17-year high. Consumer spending increased 0.6 percent in April.
The government revised first-quarter GDP growth down 0.1 percentage point, to 2.2 percent. The economist consensus and both the New York and Atlanta GDP models all forecast growth of at least 3 percent in the current quarter.
Core inflation was 0.2 percent in April, in line with estimates. Over the past 12 months, it has increased 2.0 percent, at the bottom of the Fed’s target range for inflation. Construction spending increased 1.8 percent in April, a reversal from March’s 1.7 percent drop and ahead of estimates of 1.0 percent.
The manufacturing PMIs for May showed a resilient manufacturing sector. The Markit survey was down very slightly, while the ISM survey rose. Both showed solid growth in new orders and production. Auto sales were strong as well. Car buyers shrugged off higher gas prices, with sales of pick-up trucks, SUVs and crossovers strong across domestic and foreign automakers.
While domestic markets remained strong, the European manufacturing sector weakened in May. Political turmoil dinged European markets this week. The euro ended up flat on the week, but iShares MSCI Italy (EWI) finished lower. Deutsche Bank (DB) fell 8.38 percent on the week after the Federal Reserve put its U.S. operations on its watch list.
The S&P 500 Index increased 0.54 percent this week and the U.S. Dollar Index was flat. iShares MSCI EAFE fell 0.34 and iShares MSCI Emerging Markets (EEM) slid 0.22 percent. WisdomTree Emerging Currency (CEW) declined 0.37 percent as Brazil’s currency became a new source of emerging market weakness. Nationwide strikes by truckers and oil workers forced the CEO of Petrobras (PBR) to step down. iShares MSCI Brazil (EWZ) dropped 3.87 percent this week. Petrobras tumbled 20.22 percent.