Market Currents

• A Resilient Market. Bucking the “sell in May” trend, equities were the best-performing asset class last month.  Despite a    re-strengthening of the dollar and a more hawkish-sounding Fed, U.S. stocks, along with oil prices, were able to continue their respective rallies.  The action left broad stock indices near all-time highs once again.

• Weakening Growth Expectations. Even though the stock market neared new all-time highs, growth expectations have been weakening.  The weak jobs report for May—showing the smallest additions to payroll since 2010–revived fresh fears of a domestic slowdown.  Overseas, several macro indicators from China had not been encouraging, either.

• Bullish Internals Cross Currents. Despite the growth scare, a number of internal “technical” indicators of the market are encouraging.  Market breadth is generally healthy.  Unlike last year, where a mere handful of companies supported the market’s gains, the current push toward all-time highs is confirmed by a broader number of stocks.

• To Hike Or Not To Hike. Several Fed officials have come out and expressed their desire to hike interest rates this summer – only the second time in nearly ten years.  The unimpressive jobs report, however, has likely thrown a wrench into this plan.  Most analysts are now expecting the Fed won’t implement a rate hike until near year-end.

• BeLEAVE in Britain? June 23^rd is the date when Britons will vote on whether to leave the European Union.  A vote for “Brexit” would not only cast doubts on Britain’s economic situation, but also call into question the sustainability of the European Union itself.  Stay tuned.  This is a volatile event with an unpredictable outcome.

• Depressed Sovereign Yields. Reflecting concerns over sluggish global growth and U.K’s referendum vote, investors flocked to safe-haven assets by seeking cover in sovereign debt.  The yield on the benchmark U.S. government note closed at the lowest level since 2012, while the Germany’s 10-year debt fell below zero for the first time on record.

• Equities Remain Attractive. We are encouraged to observe that the recent rally is supported by a healthy market breadth as well as strength in “economically sensitive” sectors, indicative of an improving risk appetite.  Central banks are likely to remain accommodative.  The twin headwinds of last year, a strong US dollar and collapsing crude prices, appear to be stabilizing and/or reversing.  Despite these positives, investor sentiment remains cautious—which, in contrarian terms, is bullish.