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A Run on Worry Beads

Most of the week was spent worrying about what-ifs: what if a trade war erupts, what if China plays hard ball, what if General Electric is removed from the Dow? Granted, the last issue wasn't really a major what-if, but more of an "it finally happened" action. After 110 years, the last original stock in the Dow Jones Industrial Average Index was removed. The move was the latest evidence of the changing corporate world. Once a key industry-based nation, the U.S. has become a landscape of health, IT, retail and service companies – at least according to the make-up of the key stock indices. GE was replaced by Walgreens Boots Alliance Inc., the largest drugstore chain by U.S. retail pharmacy sales.

As for what really bothered the financial markets this week, it was the possibility of a trade war. The financial news was consumed with trying to understand the potential economic impact if Trump’s tariff threats turn into reality. The U.S. stock market staged a fierce two-day decline over fears that the economic benefits gained from the tax cuts could be wiped out. Even Federal Reserve Chairman Jerome Powell acknowledged companies are beginning to rethink their plans for capital expenditure. Economists and politicians alike debated how long it would take for the tariffs to hit consumers' wallets and what, if any, drag might be seen on GDP. The important thing to remember when reaching for your worry beads is that nothing has been put into action YET. So, take stock market gyrations with a grain of salt and keep breathing.

Other Key Indicators this Week:

Housing – On the surface, a five percent jump in housing construction in May is something we should be excited about. But dig deeper, and the picture is not so rosy. The Midwest was the only geographical area where construction on new homes increased. The number of building permits, which reflects future activity, fell 4.6 percent and was the second drop in a row. Builders continue to cite rising material costs and a lack of available land as deterrents for building. Adding to the housing woes, existing home sales were also down for the second month, with three of the four regions posting declines. The limited number of homes for sale is pushing up property values faster than wages are rising. Together with rising mortgage rates, home affordability threatens to derail the industry.

Leading Indicators – The Leading Economic Index rose 0.2 percent, the smallest increase in eight months. Despite the small gain, most of the components in the index showed improvement. The biggest contributor was ISM new orders, rising 0.17 percent. The two areas posting declines were residential and the labor markets. May capped seven months of gains for the index, suggesting continued economic growth, albeit a bit slow in some areas.

Strategically for Credit Unions:

The yield curve continues to flatten as the bond market adjusts to last week's fed funds increase. Trade fears and uncertainty with global growth are keeping a lid on longer-dated yields. Credit unions that have liquidity to invest are finding acceptable investments in the two- to three-year area. This maturity range is providing enough yield to feel protected, whether the Fed continues its aggressive stance or decides to slow down next year.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.