Markets, Economy

Weekly Kickstart (06/24/2019-06/28/2019)

6/24/19 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 2.20 percent to 2,950.46. That left the benchmark index up 17.70 percent 2019-to-date, and just 0.13 percent below the new all-time closing high hit on Thursday. Although the favorable seasonal conditions we outlined at the start of the month have likely helped buoy equities in June, the biggest driver of the latest run-up in the market has been the Federal Reserve’s perceived dovish shift in tone. Indeed, on Wednesday monetary policymakers kept the target range for the federal funds rate at 2.25-2.50 percent, but used changes in language and economic projections to signal that rate cuts could occur this year. The so-called “dot plot,” for instance, shows where each committee member expects rates to be in the future. At the March policy meeting not one of the 17 FOMC members said that they expect rates to be lower at the end of 2019, but following last week’s meeting one committee member now sees a 25 basis points (bps) cut occurring during the next six months, and seven members anticipate a 50 bps cut in H2.


Justification for this new outlook includes changing the assessment of the overall economy from expanding at a “solid” rate to expanding at only a “moderate” rate. The committee also removed the word “patient” from its statement, which many traders interpret as a signal that policymakers are ready to act at any upcoming FOMC meeting. The futures market even implies that there is currently a 100 percent chance of the first rate cut happening at the July 31st meeting. Does that mean stocks will be disappointed (sell off) if the Fed fails to deliver the expected rate cut next month? Some sort of tantrum is of course possible but ultimately investors should prefer a strong economy that does not require accommodative monetary policy. There is also a chance that a trade accord is reached when President Trump meets with Chinese President Xi at this week’s G-20 summit, which would further lessen the need for a rate cut any time soon. On the other hand, trade negotiations could break down, and various other near-term risks could arise as stocks continue to hover near record levels. Any regular investors unsure how to navigate the potential uptick in volatility should consider working with a professional financial advisor and as always, we are here to help with any questions you may have.


To recap a few of the things we learned about the economy last week, the positives included that building authorizations rebounded, existing home sales rose, and the number of Americans making first-time claims for unemployment benefits declined. As for the negatives, mortgage applications slid, homebuilder optimism cooled, housing starts fell, and gauges of regional manufacturing activity deteriorated. This week the pace of economic data picks up slightly, with a few important reports on housing, factory output, consumers, wage growth, and inflation scheduled to be released, along with the government’s final estimate of U.S. gross domestic product (GDP) growth in the first quarter of 2019.


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Sources: Econoday, FRBG, Wells Fargo, CME, FRBSL

Post author: Charles Couch