Markets, Economy

Weekly Kickstart (07/01/2019-07/05/2019)

7/1/19 8:00 AM

iStock-626627280.jpgStocks pulled back last week, as the S&P 500 fell by 0.29 percent to 2,941.76. That small loss still left the benchmark index up 17.35 percent 2019-to-date, and only 0.42 percent below the record closing high hit just one week earlier. As for performance during the month of June, the S&P 500 jumped by 6.89 percent, the largest increase since January and the best June in 64 years. This is also the first time since 1999 that the S&P 500 rallied at least 5 percent in June and 10 percent in the first half of the year. Such a bullish start has only been seen in five other instances since 1929. Forward returns (next six months) during these prior periods were at best mixed, but the sample size is so small that little weight should be given to such statistics anyway. Perhaps a better signal is available by looking at bonds, particularly long-term Treasury securities, which are also doing very well in 2019. Indeed, this is the 10th time since 1980 that both the S&P 500 and bonds have gained at least 5 percent in the first six months of a year. During previous instances, performance in the second half of the year was typically not as strong as what happened during the first six months, but on average both bonds and equities continued higher.

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Stocks are the clear standout here because in all but one occurrence the S&P 500 finished the year above its June closing level, and overall the average second-half return was an outstanding 11.3 percent. Of course past performance does not necessarily predict future results, but even if history repeats itself and stocks push higher, it does not guarantee it will be smooth sailing for investors throughout the remainder of 2019. For example, a big factor behind the latest run-up in both equities and bonds has been the perceived shift in the Federal Reserve’s outlook for monetary policy. Current pricing in the Fed funds futures market even implies a 100 percent chance of an interest rate cut occurring later this month, but there is a lot of economic data scheduled to be released between now and the July 31st FOMC meeting. If most of these reports surprise to the upside then it could be harder for officials to justify being aggressively dovish. Alternatively, if economic data come in much weaker than anticipated then even larger rate cuts may be warranted. Add to this the uncertainty still surrounding the trade negotiations, the debt ceiling, and various other issues, and it is clear that there are lots of potential excuses (risks) for traders to take profits (sell) as stocks hover near all-time highs. Any regular investors unsure how to handle the possibility of an 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.

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To recap a few of the things we learned about the economy last week, the positives included that housing affordability improved, mortgage applications rose, pending home sales increased, the 30-year mortgage rate fell to a nearly 3-year low, disposable income growth picked up, demand of U.S.-manufactured durable goods stabilized, and an important gauge of business investment rebounded. As for the negatives, the nation’s trade deficit (in goods) widened, new home sales unexpectedly declined, the number of Americans making first-time claims for unemployment benefits lifted to a 7-week high, consumer confidence softened, gauges of regional manufacturing activity continued to deteriorate, and the Fed’s preferred measure of household inflation exceeded estimates. This holiday-abbreviated week the pace of economic data remains elevated, with several important reports on factory output, construction spending, the U.S. service sector, and employment scheduled to be released. That includes the potentially market-moving June job report from the U.S. Labor Department due out on Friday.

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What To Watch:

Monday

Tuesday

Wednesday

Thursday

  • Independence Day
  • All markets closed

Friday

 

 

Sources: Econoday, CNBC, BIG, FRBSL

Post author: Charles Couch

Disclosures