Markets, Economy

Weekly Kickstart (07/29/2019-08/02/2019)

7/29/19 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 1.65 percent to 3,025.86. That was a new record close and it left the benchmark index up an outstanding 20.70 percent 2019-to-date. Despite the solid gain, the price action was quite choppy during the past few trading sessions, which is to be expected as we inch closer to the big announcement on monetary policy from the Federal Open Market Committee (FOMC). Even after July’s uptick in positive economic data, the latest pricing in the futures market still implies that traders are 100 percent certain there will be at least one quarter-point cut to the Federal funds rate this Wednesday, including a non-trivial 19.4 percent chance of a 50 basis points cut. How equities will react to what officials ultimately decide to do remains unknown and could depend heavily on the accompanying statement from the committee, as well as chair Jerome Powell’s post-announcement press conference.

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If the extra uncertainty from the Fed was not enough, there are also a handful of other issues that many investors are paying close attention to. For example, the corporate earnings season for the second quarter of 2019 has moved into full swing, with 145 S&P 500 and 10 Dow Jones Industrial Average companies just last week releasing their Q2 profit results. Of the 44 percent of firms that have already reported, 77 percent have beat the average earnings per share estimate, according to FactSet, and 61 percent have exceeded their mean sales forecast. Both of those figures are above the 5-year average. Another welcome surprise for the markets last week was the avoidance of debt ceiling brinkmanship. Indeed, a bipartisan deal was announced to suspend the U.S. borrowing limit for two years. Congress, though, will still need to pass a spending bill to appropriate money to the various government programs in the new fiscal year in order to completely eliminate the risk of a partial shutdown in October. Add to all of this the unresolved trade war and various other unknowns for market participants to digest in the near-term and it would not be too surprising if volatility picks up following the recent surge in stock prices. Any regular investors unsure how to navigate this environment should consider consulting 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 the nation’s trade deficit (in goods) narrowed, real estate inflation cooled, new home sales rose, demand for American-made durable goods increased, a key proxy for U.S. business investment jumped, initial jobless claims slid to a near-half-century low, and gross domestic product (GDP) in the second quarter of 2019 expanded by more than projected. As for the negatives, mortgage applications declined, existing home sales fell, and gauges of regional manufacturing activity dipped into contractionary territory. This week the pace of economic data remains elevated, with lots of important reports on manufacturing, housing, consumers, and employment scheduled to be released, including the potentially market-moving July job report from the U.S. Labor Department due out on Friday.

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What To Watch:

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Sources: Econoday, CME, WF, Bloomberg, FactSet, FRBSL

Post author: Charles Couch

Disclosures