Weekly Update – Investors Shrug Off Geopolitics, Push Stocks Higher

US: S&P 500 Index +1.5%, Dow +2.3%, Nasdaq +1.8%
Europe: STOXX Europe 600 +0.7%, German DAX +0.4%, France CAC 40 +1.0%, U.K. FTSE 100 +0.4%
Asia: Japan Nikkei +3.7%, China Shanghai Composite +3.1%, Korea KOSPI  +1.7%
Rates/Commodities: 10-Year Treasury yield +1 basis points to 2.83%, WTI crude oil -4.1%, COMEX gold -1.1%

Investors shrugged off signs of slowing trade growth in China and a somewhat contentious NATO meeting to push global equities higher this week. Cyclical sectors such as technology and industrials led the U.S. advance; financials also posted healthy gains ahead of earnings releases on Friday from several major banks that marked the unofficial start of second quarter earnings season, in which aggregate S&P 500 Index earnings are expected to grow more than 20% year over year for a second straight quarter. LPL Research Chief Investment Strategist John Lynch reiterated from our recently-released Midyear Outlook 2018: The Plot Thickens, “We continue to favor cyclical sectors such as financials, industrials, and technology that we think may benefit from the return of the business cycle.”

Overseas, regional European equity indexes were mostly higher this week but lagged their U.S. counterparts. Investors’ anxiety heightened after President Donald Trump criticized NATO members ahead of the two-day summit in Belgium when he tied shortfalls in allies’ agreed upon defense spending levels to U.S. trade deficits with the European Union. Meanwhile, emerging markets stocks rebounded, with the MSCI Emerging Markets Index gaining 1% on the week, underpinned by strength in Chinese equities despite data that showed slowing trade growth and a markedly larger-than-expected trade surplus as imports fell more than exports—the Shanghai Composite gained more than 3% on the week. Elsewhere in the region, Japan’s Nikkei jumped 3.7% with economic data, though lackluster, coming in better than expected.

Looking ahead, a variety of economic data is due out in the U.S. next week, highlighted by the Federal Reserve’s Beige Book on Wednesday and followed by the leading economic indicators on Thursday. The foreign docket includes inflation readings out of the Eurozone and Japan, as well as China’s second-quarter gross domestic product figures. View all the key events on our Weekly Global Economic & Policy Calendar.


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