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BMT MARKET SUMMARY – 6/17/2019

Market Summaries

For the week ending June 14

Economic Data: Consumer Price Inflation Remains Low Adding a Boost to Consumer Spending

Consumer spending rebounded in May 2019, a positive indication that recently reported weak labor market data has not deterred consumers from spending. Retail sales increased during the month by a healthy +0.5%, following upward revisions to the prior month of +0.3%. Rising wages and an overall healthy labor market continue to fuel consumer spending across a wide range of products and services. Consumer spending has remained positive over the past few months.

Monthly Advance Retail Sales
(6/17/2018 – 5/31/2019)

Chart: Monthly Advance Retail Sales

Source:  Bloomberg Finance L.P.

Low consumer prices have been supportive of consumer spending. In fact, annual inflation on consumer products, excluding food and energy, dropped to 2.0% in May, the lowest level reached in more than a year. The extra purchasing power, given that annual wage growth is currently above 3.0%, is providing a boost to consumer spending.

YOY Core (Less Food and Energy) Consumer Prices
(12/31/2017 – 5/31/2019)

Chart: YOY Consumer Prices

Source:  Bloomberg Finance L.P.

Overall, consumers are feeling good about the current economy and economic growth. Trade tensions between the U.S. and China, that have contributed to ongoing headline news and market volatility, have yet to notably dent consumer confidence levels. Confidence levels have held up reasonably well, despite tariff concerns having picked up recently among consumer sentiment surveys.

University of Michigan Consumer Sentiment
(12/31/2007 – 6/30/2019)

Chart: Univ. of Michigan - Consumer Sentiment

Source:  Bloomberg Finance L.P.

Equity Market:  Equity Prices Continued to Rise in June

New developments around trade tensions between the U.S. and China helped the U.S. equity markets continue to regain losses sustained in May. In fact, after last week’s domestic equity market performance, the S&P 500 Index is up +5.01% in June and within roughly 2.0% of an all-time high.

Last week, the S&P 500 Index rose +0.53% led by the Consumer Discretionary and Communication Services Sector, up +2.46% and +1.40%, respectively. The Energy Sector was the worst performing sector — down -0.47%. Declining oil prices, led by high supply and weak demand concerns, weighed on the sector’s performance.

Overseas, the MSCI Emerging Markets Index was up +0.90% and the MSCI EAFE Index (developed international equity) ended the week down -0.26%. For the year, the MSCI EAFE Index is ahead +11.29%.

MSCI EAFE Index (developed international equity)
(12/31/2018 – 6/14/2019)

Chart: MSCI EAFE Index

Source:  Bloomberg Finance L.P.

Fixed Income Market: U.S. Treasury Yields Take a Breather

U.S. Treasury yields were mostly unchanged last week after five consecutive weeks of declines.  The 2-year and 10-year U.S. Treasury notes ended the week at 1.84% and 2.08%, respectively.

Low inflation and global growth concerns have pushed the yield down on the 2-year U.S. Treasury yield to levels not seen in roughly 18 months. Thus far, the 2-year yield has dropped 65 basis points (0.65%) this year as investors raise the odds that the Federal Reserve will drop interest rates this year.

Week Ahead: All Eyes on the Federal Reserve

When looking at the U.S. economic calendar for this week, the most important event will be the Federal Open Market Committee (FOMC) meeting that will conclude on Wednesday, June 19.  Investors will be monitoring post-meeting comments from Chairman Powell very closely, looking for any hint regarding the direction and timing of future monitor policy decisions.

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