In early November 2016 the Fed Funds Rate was 0.25% and the yield on the Ten-Year Treasury was just under 2%. The consensus opinion was that rates had been artificially low since the 2008-2009 financial crisis, but that it was time to normalize those rates. Turn the clock forward to this past Wednesday, the Ten-Year Treasury briefly traded below a 2% yield, while the Fed left short-term rates unchanged at 2.25% but suggested that cuts could be coming. Across the pond ECB chief Mario Draghi said his bank would reduce rates if inflation didn’t increase. The yield on the Ten-Year German bond is slightly negative (yes, you have to pay them to hold your money), which helps explain the lid on U.S. long-term rates as well as the relative strength of the dollar. In fact, there are $13 trillion of bonds around the globe paying below zero percent interest rates. Trade tensions, which has been the other dominant storyline for the last year, appeared to ebb a bit as hope of some progress at the upcoming G20 (June 28-29) grew based on the latest tweets and other semi-official comments. The S&P 500 responded by setting a new record high on Thursday and finished the week up 2.2%. The Russell 2000 continued to lag, advancing only 1.1%, and still trading 11% below its high from last summer.
At the risk of seeming like a “Debbie Downer”, there were some troubling headlines that the market chose to largely ignore. On Thursday, Iran shot down a U.S. drone, and President Trump ordered a retaliatory air strike, but then called it off. Yikes! Additionally, the economic numbers that came out were all weak, suggesting that the manufacturing sector in particular is feeling the strain of these trade issues and related supply chain disruptions. Most notable was the Flash Purchasing Managers Index for June which registered a reading of 50.1, its lowest level since 2009. A reading under 50 suggest a contraction.
All eyes will be on the two-day G20 Summit in Osaka, Japan that starts on Friday. The other economic data will likely be a sideshow, with June Consumer Confidence on Tuesday and Consumer Sentiment on Friday perhaps of note as it will give us a reading as to whether consumers are feeling the same stresses as manufacturers. The data for May showed 18-year highs for consumer sentiment.
The situation in Iran should not be ignored, particularly as it relates to energy assets, but also their nuclear weapons program presents very serious risks.
Kewaunee Scientific Corporation
PetMed Express, Inc.
Consolidated Communications Holdings, Inc.
The Company will report second quarter earnings the first week in August. The jury is still out. CNSL is a 0.99% holding in the North Star Dividend Fund. CNSL corporate bonds are a a 1.07% holding in the North Star Opportunity Fund and a 2.93% holding in the North Star Bond Fund.
Equities Contributor: IRIS.xyz
Source: Equities News
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