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MCF Weekly Capital Market Review - June 17th, 2019

Headlines were quiet last week with major market indices mostly flat. Market participants appear to be holding their breath for any movement on the US-China trade dispute and any clarification of Fed policy that can be gleaned from this week’s meeting. Between the US and China, both appear to be doubling down with no indication of compromise or concession, at least not publicly. US Treasury Secretary Mnuchin says that Trump is “perfectly happy to move forward with tariffs” if there is no progress[1] while China’s central bank Governor Yi says they have plenty of room in the fiscal and monetary toolkit to mitigate the effects of the trade war[2]. The two are scheduled to meet at the G20 summit June 28-29 in Osaka. Both sides have been silent about the upcoming meeting so an immediate deal is not likely; the optimistic outcome is a temporary truce on further escalations if they can agree to continue discussions.

PPI and CPI inflation numbers remain subdued and still shy of Fed target. Consumer sentiment fell in May, primarily due to the trade dispute headlines, with year-ahead inflation expectations also falling. Job openings remain high and the jobless claims level remains low, reflecting the tight labor market conditions from a 3.6% unemployment rate. Retail sales were strong with upward revisions to prior month figures[3].

The Federal Open Market Committee (FOMC) will meet this week with a meeting announcement Wednesday at 2 PM. The predominant market expectation is for no change to short-term interest rates. The majority opinion shifts to a rate cut for the July 31 meeting plus a second cut for the September 18 meeting[4]. Market participants are expecting a likely pivot to looser monetary policy rhetoric. Such a tone would be a large shift from Powell’s rate comments as recently as May 1, stating “We don’t see a strong case for moving in either direction,”[5] although market participants were betting on a coming rate cut. Aside from the FOMC meeting Wednesday, this week will see releases on housing and the Fed Business Outlook Survey.

[5] https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190501.pdf

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by MCF), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from MCF.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.   MCF is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the MCF’s current written disclosure statement discussing our advisory services and fees is available upon request. If you are a MCF client, please remember to contact MCF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. Please click here to review our full disclosure.

REFLECTED INDICES

S&P Composite 1500® Index combines three leading indices, the S&P 500®, the S&P MidCap 400®, and the S&P SmallCap 600® to cover approximately 90% of the US market capitalization. It is designed for investors seeking to replicate the performance of the US equity market or benchmark against a representative universe of tradable stocks. Investors cannot invest in an index.

MSCI ACWI ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 23 Emerging Markets (EM) countries. With 1,859 constituents, the index covers approximately 85% of the global equity opportunity set outside the US. Investors cannot invest in an index.

Bloomberg Barclays Global Aggregate ex-USD Index is a measure of global investment grade debt from 24 local currency markets. This multi- currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. Investors cannot invest in an index.

Bloomberg Barclays High Yield Corporate Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded. Investors cannot invest in an index.

S&P GSCI is a composite index of commodity sector returns which represents a broadly diversified, unleveraged, long-only position in commodity futures. The S&P GSCI is intended to provide exposure to broad-based commodities. Investors cannot invest in an index.

Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed- rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass- through), ABS and CMBS (agency and non-agency). Provided the necessary inclusion rules are met, US Aggregate eligible securities also contribute to the multi-currency Global Aggregate Index and the US universal Index, which includes high yield and emerging markets debt. The US Aggregate Index was created in 1986 with history backfilled to January 1, 1976. Investors cannot invest in an index.

Bloomberg Barclays 1-10 Year US Government Inflation-Linked Bond Index tracks the 1-10-year inflation protected sector of the United States Treasury market. Investors cannot invest in an index.

Bloomberg Barclays US Treasury 1-3 Year Index measures the performance of public obligations of the US Treasury with maturities of 1-3 years, including securities roll up to the US Aggregate, US Universal, and Global Aggregate Indices. Investors cannot invest in an index.

Bloomberg Barclays US Treasury Bellwethers 3 Month Index is an unmanaged index representing the on-the-run (most recently auctioned) US Treasury bill with 3 months’ maturity. Investors cannot invest in an index.