Labor Market Strength

U.S equity markets advanced last week and the S&P 500® Index claimed a new all-time closing high of 2,415.8 and returned 1.5% for the week. However, while most sectors were positive, the energy sector struggled and declined 2.14%.  The decline came on the heels of the most recent OPEC meeting in Vienna where members agreed to extend the current production cuts for an additional nine months but deemed no further cuts were necessary. The Federal Open Market Committee meeting minutes for the month of May were released citing continued strength in the labor market but slowing GDP growth in the first quarter.  Investor expectations of a rate increase in June remain high.  Earnings season is coming to a close with a few more companies reporting this week.  Investors are staying tuned and hope for continued equity market strength.

The S&P 500® Index was up 1.4% for the week. The top-performing sectors in the S&P 500® Index included Utilities (2.5%) and Technology (2.3%), while bottom-performing sectors included Telecommunications (-0.3%) and Energy (-2.1%). In the fixed-income market, the 10-year Treasury yield was up during the week, ending at 2.3%.

We continue to seek those companies possessing identifiable catalysts, and focusing on those stocks with favorable odds.

Secular Change

MasterCard, Inc. (MA), founded in 1966, operates with its subsidiaries to provide transaction processing and additional services for its credit, deposit, and ATM programs, which reach over 24,000 financial institutions worldwide. MA facilitates the authorization, clearing, and settlement of transactions, as well as markets and develops other payment-related services. MA’s brands include MasterCard, Maestro and Cirrus.

The payment transition from cash to checks to plastic is well underway in the U.S., but is still in its infancy in areas abroad. We expect MA to be a prime beneficiary of this secular change, as the company enjoys high barriers to entry, basically dividing the market with Visa, Inc. (V). The positive competitive landscape will, in our belief, protect MA’s profits in the years to come, as the company increases its penetration in developing economies. Like many companies, MA has been impacted by the slowing economy; however, it has at its disposal cost cutting options to mitigate the cyclical pressures that may weigh on its earnings. Given the company’s bright long-term growth prospects and near-term ability to protect profits, we believe MA represents favorable odds for our clients.