Markets Update - DJIA and S&P500 Reach All Time Highs

 

Last week the Dow Jones Industrial Average and the S&P 500 reached all time highs as the news about trade discussion between U.S. and China was announced. While the S&P 500 has already passed its January high previously before the last week record high, it was the first time for Dow.

On the other hand, the technology heavy Nasdaq 100 Index was held back from taking part in the latest all-time-high by major tech names such as Apple, Amazon, and AliBaba. In the case of Apple, it appears that the comment from President Trump about potential tariff on Apple products pulled the company’s stock lower.

 
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Positive economic data on US wage growth has pushed the yields on 10-year U.S. Treasuries note back above 3% as investors anticipate possible further rate increase by the Federal Reserve. Going into 2018, market was expecting 3 rates increase from the Fed. But the slew of recent economic data indicating a robust economy has puzzled the wall street to the point where they are placing a 77.4 per cent probability of a possible rate increase during September meeting. If the Fed did decide to go ahead and hike the rates in September on top of another hike in December, this will the first time since 2008 where Fed has moved the benchmark interest rate more than four times.

 
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Oil price jumped more than 2% to hit its highest since November 2014 at $80.94. Traders are speculating a supply gap from the renewed U.S. sanction on Iran after Saudi Arabia and Russia ruled out any immediate production increase. According to BNP Paribas oil strategist Harry Tchilinguirian, this supply gap will be resolved through high oil prices. This is a heavy blow to President Trump who has called for action to raise global supply.

 
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There is a new sector in town called Communication Services and it includes high profile names such as Netflix, Google, Facebook and smaller names such as Twitter. According to Reuters, “The telecom sector, currently about 2 percent of the entire S&P 500 is expected to have a roughly 11 percent weighting under its new communication services tag”. Not all high-profile names are moving into this new sector with Amazon and Apple remaining in their old sectors. This latest shake up of the Global Industry Classification Standards (GICS) reflects the rapidly evolving global economy and the role of technology in our future.

By Sean O’Dea and Paul Menestrier - Portfolio Management Analysts, Baruch Investment Management Group