Wall Street finished a holiday shortened week higher as investors balanced optimism over a US – Iran peace agreement against a more hawkish debut from Federal Reserve Chairman Kevin Warsh.
The week’s biggest market catalyst came from the Middle East. Stocks surged Monday after the U.S. and Iran announced a peace agreement that would reopen the Strait of Hormuz. The Dow hit a record high as investors welcomed the prospect of reduced geopolitical tensions. On Wednesday, the central bank left rates unchanged as expected, but the market started sliding after Warsh signaled a greater likelihood of rate hike this year. But, the markets started turning positive on Friday as SpaceX continued to attract investor attention following its IPO debut.
The other reason for investor optimism was that May retail sales rose 0.9% against a 0.5% estimate, the biggest monthly gain since January – Online stores, furniture, motor vehicles were all up. For the week, the Nasdaq Composite led the major indexes with a gain of 2.43%, while the S&P 500 rose 0.93% and the Dow Industrials added 0.71%.
Future Wealth’s View
The tech trade continues as concerns over the war abates. In a strange twist of investor communications, the announcement that Apple has agreed to adopt Intel as its chip provider, came not from Apple or Intel, but from Trump’s social media post. Trump has now taken on the role of de facto communications director for all the companies that have investment from the US government. Intel is 10% owned by the US Government. Apple ships hundreds of millions of devices annually. Designing and building chips for Apple in the US is a volume manufacturing commitment that gives Intel decade long revenue visibility.
The Bank of Japan raised its benchmark interest rate to 1 percent on Tuesday, the highest level since 1995 and its first hike since December. Cheap yen has funded a lot of global risk this cycle. That funding just got more expensive. But, with US markets hitting new highs, international markets are increasingly looking more attractive.
For investors, the key is to figure out where to move money that offers the best return while taking a modest amount of risk. Trying to time the market or staying away from taking any risk in the stock market are all losing propositions.
Warren Buffett famously said, “If you don’t find a way to make money while you sleep, you will work until you die.”