Week in Review

Week in Review: May 21, 2018

Major equity and fixed income indexes were slightly negative last week as geopolitical uncertainty and rising rates weighed on investors. The S&P 500 and the MSCI EAFE both declined -0.5%, while the MSCI Emerging Markets index fell by -2.3%. The 10-year U.S. Treasury yield finished the week at 3.06% after peaking at 3.1% midweek, tied to concerns about the rising amount of government debt that needs to be issued to fund the recent tax cuts. 

Brexit Redux




Despite these concerns, U.S. economic releases this past week were upbeat. The Conference Board Leading Economic Index continued to signal that solid growth should continue throughout 2018 and reports from the Philadelphia and New York regional Federal Reserve banks showed that growth unexpectedly accelerated in May. However, investors also pondered thoughts from several Federal Reserve officials on a wide range of topics, such as the “neutral” rate of interest, 2018 growth estimates and the lack of affordable housing. 

Higher interest rates in the U.S. have brought more attention to the U.S. bond market and with it attention to the U.S. dollar, which has recently strengthened. We see the strength coming from both the higher interest rate story and the somewhat relatively weak growth data from Europe. Expectations for a strong pickup in growth in Europe were high and euro area data fell short of expectations which contributed to the weakness in the euro and the strength in the U.S. dollar.

Somewhat reminiscent of Brexit, the newly announced populist government of Italy has created a new source of uncertainty in the euro area which may continue well into 2020. The first key tests for the euro area will be when the Italian government presents updated policy plans in September and then the budget in October. This uncertainty has already put material pressure on Italian debt. Yields across the curve are higher and the yield differential between Italian debt and other European sovereign debt is increasing sharply, especially against Germany. The surprises in Italy were not welcomed by investors and contributed to the overall weakness in the euro. Despite these near term challenges, we continue to find the European markets cheap relative to the U.S., and believe we will see additional opportunities to add to non-U.S. positions in the coming months on the back of higher politically-driven market volatility.

We recall the fear Brexit instilled in investors’ minds and note the effect on U.S. markets lasted all of two days. While the Italian political drama unfolds, we expect investors to have similar over-reactions, creating opportunities for patient investors.

Market Returns (USD)





Global Equities

MSCI All Country World

-0.7% 2.4% 1.4% 15.2%

S&P 500

-0.5% 3.0% 2.2% 16.9%

Dow Jones Industrial Average

-0.4% 2.9% 0.9% 22.4%


-0.6% 4.3% 7.0% 22.7%

Russell 2000

1.3% 6.5% 6.4% 21.1%


-0.5% 2.9% 1.3% 12.5%

MSCI Emerging Markets

-2.3% -2.6% -1.2% 17.7%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

-0.2% 0.0% -0.6% -0.5%

Bloomberg Barclays Intermediate Government/Credit

-0.2% -0.8% -1.8% -1.4%

Bloomberg Barclays High Yield Bond

-0.2% 0.7% -0.2% 3.0%

JPMorgan GBI Emerging Markets Global Diversified

-3.5% -8.2% -4.1% 2.7%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

2712.97 2727.72 2673.61 2365.72

Dow Jones Industrial Average

24715.09 24831.17 24719.22 20663.02

10-Year U.S. Treasury Yield (Constant Maturity)

3.06% 2.97% 2.40% 2.23%

Gold ($/oz)

$1,293.04 $1,319.30 $1,302.80 $1,247.07

Crude Oil ($/barrel)

$71.28 $70.70 $60.06 $50.61

U.S. Dollar / Euro ($/)

1.18 1.19 1.20 1.11

U.S Dollar / British Pound ($/£)

1.35 1.35 1.35 1.29

Japanese Yen / U.S. Dollar (¥/$)

110.78 109.39 112.69 111.49