Emerging-market equities rebounded last week, posting the first weekly gain since early April. The 2.8% total return for the Vanguard Emerging Market ETF (VWO) for the five trading days through May 27 also marked the strongest performance for the major asset classes last week, based on a set of proxy ETFs.
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“It is foolish and wrong to mourn the men who died. Rather we should thank God that such men lived.”
–General George Patton

● What They Do With Your Money:
How the Financial System Fails Us and How to Fix It
By Stephen Davis, et al.
Summary via publisher (Yale University Press)
Each year we pay billions in fees to those who run our financial system. The money comes from our bank accounts, our pensions, our borrowing, and often we aren’t told that the money has been taken. These billions may be justified if the finance industry does a good job, but as this book shows, it too often fails us. Financial institutions regularly place their business interests first, charging for advice that does nothing to improve performance, employing short-term buying strategies that are corrosive to building long-term value, and sometimes even concealing both their practices and their investment strategies from investors.
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William Bernstein penned an intriguing e-book a few years ago that considered the possibility that correlations are destined to rise among asset classes due to indexing’s growing popularity. “The average investor can build and manage multi-asset class portfolios to a degree that was once the exclusive province of institutions,” the financial planner wrote in Skating Where the Puck Was: The Correlation Game in a Flat World . “As a result, the low-hanging fruit of low correlations has probably been picked.” If he’s right, designing and managing asset allocation strategies faces new challenges in the years ahead. For some insight on how Bernstein’s 2012 observation looks at the midway point in 2016, let’s crunch the numbers for a preliminary evaluation via a broad set of ETFs and mutual funds.
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● US durable-goods orders jump in Apr due to planes | MarketWatch
● Orders for US Capital Goods Unexpectedly Fall for 3rd Month | Bloomberg
● Pending home sales +5.1% in April, reach highest level in a decade | CNBC
● US jobless claims fall more than expected last week | Reuters
● US Consumer Comfort Index Drops on Weaker Views of Personal Finances | BBG
● Regional mfg activity down in May, according to Kansas City Fed | Wichita Eagle
● How Would a Donald Trump Presidency Affect Your 401(k)? | NY Times
● North Korea Linked to Digital Attacks on Global Banks | NY Times

US economic growth in the second quarter is widely expected to rebound after Q1’s stall-speed rise of just 0.5% (seasonally adjusted annual rate). The question is how much a rebound will we see when the Bureau of Economic Analysis (BEA) publishes this year’s “advance” Q2 GDP report on July 29?
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● Markit: US Service Sector Weakened in May; Outlier or Warning? | Barron’s
● US house prices +1.9% in Q1–19th straight quarterly rise | Builder
● US mortgage applications post another tepid gain last week | HW
● Why the global trade slowdown may matter | VoxEU
● Millennials Are Starting to Spend More | Gallup
● Foxconn replaces 60,000 humans with robots in China | MarketWatch
● Oil Tops $50: first time in 6 Months as US supply drops | Bloomberg

Survey data published by Markit Economics this week anticipates a weak US economic profile for May. Today’s flash estimate of the Services PMI for this month dipped modestly to 51.2, or just slightly above the neutral 50 mark that separates growth from contraction. The news follows Monday’s preliminary May numbers for the US Manufacturing PMI in May, which is close to a stagnant reading of 50.5. Taken together, the two updates suggest that economic activity decelerated in May.
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The US stock market rebounded sharply yesterday, dispensing the biggest daily gain in two months. But the latest surge doesn’t change much for the trailing 10-year return, which remains well below its median for the rolling decade-long changes posted over the last 50 years. That may or may not be relevant for developing intuition about future performance, but it’s a reminder that the recovery in the US stock market in recent years still pales relative to previous boom in the 1980s and 1990s.
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