June 9 New York

Pinestone Investments

The DJIA gained by 89.44 points to 21271.97 while the SP500 fell by 2.02 points to 2431.77.  The Nasdaque Composite Index plunged by 113.84 points to 6207.92.  Yield on 10 year treasury is 2.20% while the rate of the U.S dollar ro the yen was 110.36.  WTI crude oil was $45.90 a barrel.  U.S. stocks rose Friday even though Theresa May’s Conservative Party lost its majority in parliament.  This could make it difficult for the U.K.’s official Brexit negotiations, scheduled to start on June 19, to begin on time.  The DJIA still rose by about 90 points to hit a new all-time high.  But several high-profile tech stocks took a big tumble in mid-afternoon trading following a Goldman Sachs report that questioned the run in the largest tech companies.  The Goldman report focused on the five tech giants that dominate the S&P 500 and Nasdaq – Facebook (FB), Amazon(AMZN), Apple(AAPL), Microsoft (MSFT) and Google owner Alphabet (GOOGL).  The Nasdaq was down 2% in late trading Friday.  Robert Boroujerdi, Goldman’s global chief investment officer warned that low volatility in the five tech giants may be blinding investors to their risks.  Those include cyclicality, tech disruption and regulation, which could excerbate downside volatility should market conditions change.  The valuations of technology firms have gone too far.  Amazon, Facebook, Apple have added at least 29 percent this year, compared with a 8.6 percent gain in the S&P 500.  However, relating to politics, investors are continuing to view all the political noise as just noise.  They are not shrugging off any worries about a much more chaotic Brexit – and the implications that it could have on the U.K. economy and eurozone.  Investors are also showing no signs of concern about former FBI director James Comey’s Senate testimony about allegations that Russia tried to influence the U.S. elections to help President Trump win.  The bottom line is that drama in Washington and London has yet to have a negative impact on what really drives the markets – consumer and business spending.  The first-quarter earnings of companies were very strong.  Corporate America notched its best growth in profits since 2011.  As long as American consumers and big U.S. multinational companies keep spending, stocks could very well go even higher.  It also helps that the Federal Reserve is likely to not raise interest rates too aggressively either.  The Fed is expected to boost rates again at FOMC next week,  but probably by just 25 basis points.  Low rates should keep consumers and businesses happy – and the economy on track to grow at a decent pace.

Kazuhide Matsuishi

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