Ebbs and flows in trade talks, Italian populism, and the North Korea summit paired with a strong jobs report left stocks modestly higher after a volatile week. With multiple geopolitical issues playing out simultaneously, investors are starting to realize most of them will take quarters or years to play out, not days or weeks. Official U.S. unemployment dropped to 3.8%, the lowest since April 2000. Average wages rose 2.7%, leaving the Fed on track for at least two additional rate hikes this year. The dollar gained for a seventh straight week.

Weekly Returns

S&P 500: 2,735 (+0.5%)
FTSE All-World ex-US (VEU): (-0.3%)
US 10 Year Treasury Yield: 2.90% (-0.03%)
Gold: $1,293 (-0.9%)
EUR/USD: $1.166 (+0.1%)

Major Events

• Tuesday – Italian bonds plummeted after President Sergio Mattarella decided to block the formation of a euro-skeptic government, reviving concerns about the stability of the Eurozone.
• Thursday – Italy reached an agreement for a coalition government after a new economic minister was proposed.
• Thursday – Canada and Mexico issued retaliatory tariffs after US levies on steel and aluminum went into effect. The EU also said it was preparing counter-measures.
• Friday – President Trump said the June 12 summit with Kim Jong Un is back on.
• Friday – US payrolls rose by 223,000, dropping official unemployment to 3.8

Our Take

Amid all of the geopolitical headlines and President Trump’s frequent position shifting, it can be easy to overlook the fact that companies are producing record profits and the economy is chugging along. This week’s jobs report shows strength and a good middle ground for wage growth. The ten year Treasury yield is back below 3%, easing fears among those who expect rapid interest rate escalation.

The official unemployment rate hit 3.8%, the lowest since April, 2000. Of course the dotcom bull market peaked in March of 2000, so that may not provide much comfort, but there is no reason this cycle can’t stay stronger for longer. The magnitude of growth at the end of the 1990’s bull market in terms of both GDP and stock prices was much greater than we’ve seen so far, so the current cycle may be less likely to overheat in the near-term.

Volatility early in the week was driven by populist gains in Italy and fears the country may try to exit the euro. While we don’t think that is likely in the coming years because it would be too disastrous for Italy, it is a reminder that the common currency remains fragile and maintaining consistent monetary policy across borders has great challenges. Brexit so far has proved less painful than some expected, but because England is not in the euro it is much less complicated. European debt and threats to the euro in general have been the among the very few issues able to drive corrections in this 9-year bull market, and they will continue to impact markets for the foreseeable future.