MCF Weekly Capital Market Review - July 1st, 2019
After touching an all-time high only two weeks prior, markets were flat to slightly positive last week. Despite the lackluster week, the Dow Jones Industrial Average posted its best June month since 1938 at 7.2% and the S&P 500 posted its best first half of the year since 1997 at 17.3%.
Fed chair Powell’s speech on Tuesday seemed to temper expectations of monetary easing. Although the Fed will “act as appropriate to sustain the expansion,” the Fed wants to ensure it is not overreacting to short-term sentiment. The rhetoric suggests that the Fed would like to see continued evidence of a slowdown and for a time period that is beyond “short-term sentiment” before cutting rates.
Geo-political developments from last weekend’s G20 summit provide an auspicious backstop against a sustained slowdown. Trump announced Saturday no further increases on existing China tariffs and revoked a ban that prevented US tech companies from selling products to Chinese tech manufacturer Huawei. So far, Trump is touting in return a Chinese commitment to purchase “large amounts” US agricultural product. Negotiations will continue, likely dragged out; Trump mentions “quality of transaction is far more important to me than speed”. However, it is still a positive development and the optimistic “temporary truce” outcome mentioned from our 6/17/19 commentary.
Consumer confidence took another hit due to pre-G20 trade war concerns and weakening employment data. Durable Goods Orders were a mixed bag and the Q1 GDP estimate held steady at 3.1%. Positive surprises included Corporate Profits, Pending Home Sales, and Personal Income and Outlays.
This week’s releases will focus on manufacturing and employment. The PMI and ISM Manufacturing Indices, Construction Spending, and Factory Orders may provide some hints of future demand. Indications of stronger labor markets and wage inflation from the ADP Employment Report, Employment Situation, and Jobless Claims may provide some counterbalance to the Fed’s dovish pivot from its last meeting. On the other hand, weaker-than-expected reports on manufacturing and employment would lend support to the argument for monetary easing before the end of the year.
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S&P Composite 1500® Index combines three leading indices, the S&P 500®, the S&P MidCap 400®, and the S&P SmallCap 600® to cover approximately 90% of the US market capitalization. It is designed for investors seeking to replicate the performance of the US equity market or benchmark against a representative universe of tradable stocks. Investors cannot invest in an index.
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