Markets, Economy

Weekly Kickstart (07/15/2019-07/19/2019)

7/15/19 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 0.78 percent to 3,013.77. That is another new record close and it left the benchmark index up 20.22 percent 2019-to-date. The market has rallied for five of the past six weeks and most major indices are at or near all-time highs. Given the uncertainty still surrounding the trade war, the debt ceiling, and various other looming issues, this environment arguably puts a lot of pressure on officials at the Federal Reserve to “deliver” at their upcoming monetary policy meeting. Indeed, a big factor behind the latest run-up in equities has been the perceived dovish shift going on at the Fed, and just a few weeks ago the market-implied probability of a 50 basis point cut to the Federal funds rate occurring at the July 31st FOMC meeting was as high as 43 percent. Those odds crashed after the release of the better-than-anticipated June job report, but speeches from chair Jerome Powell and other Fed officials last week suggest that some sort of policy easing later this month is still a possibility. Cutting rates with stocks near record highs is nothing new for the Fed and has actually occurred 17 times since 1980.


Near-term market returns following those previous policy moves are encouraging but in the long-run investors should prefer a strong economy that does not need a highly accommodative Fed. The long-run is also the timeframe that regular investors should typically be concerned with because real wealth creation can often require years or even decades of consistent participation in the market. Moreover, recent EBRI data revealed that the average 401(k) account balance for younger (25-34), less-tenured (1-4 years) workers since the end of 2016 has surged by 133 percent, while the S&P 500 has gained just 31 percent (through the end of June 2019). Older workers (55-64) with at least five years of tenure saw their 401(k) balances rise by an average of “only” 44 percent during this same period since these individuals tend to have much larger accounts that are less sensitive to both contributions and market fluctuations. Altogether, these substantial gains should provide more evidence of how routine, tax-advantaged 401(k) contributions and the long-term resiliency of the market can together help offset periods of heightened volatility and maximize compound growth. Additional assistance is available through the use of dollar-cost averaging and regularly consulting with a professional financial advisor. 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 consumers’ revolving credit utilization increased (a potential sign of financial and economic confidence), job vacancies outnumbered job seekers in America for the 15th consecutive month, initial jobless claims fell to the best level since April, and a gauge of U.S. workers’ willingness to give up their current job security for better employment opportunities improved. As for the negatives, home-purchase applications declined, household and wholesale inflation pressures firmed, and small business owner confidence cooled (although most of the weakness remains concentrated in sectors with a higher exposure to the trade war). This week the pace of economic data picks up slightly, with several important reports on manufacturing, housing, employment, and consumers scheduled to be released.


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Sources: Econoday, FRBG, Twitter, EBRI, FRBSL

Post author: Charles Couch