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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%[1].

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[2]. 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”[3]. 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[4]

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.

[4] https://us.econoday.com/

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by MCF), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from MCF.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  MCF is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the MCF’s current written disclosure statement discussing our advisory services and fees is available upon request. If you are a MCF client, please remember to contact MCF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. Please click here to review our full disclosure.

REFLECTED INDICES

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.

MSCI ACWI ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 23 Emerging Markets (EM) countries. With 1,859 constituents, the index covers approximately 85% of the global equity opportunity set outside the US. Investors cannot invest in an index.

Bloomberg Barclays Global Aggregate ex-USD Index is a measure of global investment grade debt from 24 local currency markets. This multi- currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. Investors cannot invest in an index.

Bloomberg Barclays High Yield Corporate Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded. Investors cannot invest in an index.

S&P GSCI is a composite index of commodity sector returns which represents a broadly diversified, unleveraged, long-only position in commodity futures. The S&P GSCI is intended to provide exposure to broad-based commodities. Investors cannot invest in an index.

Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed- rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass- through), ABS and CMBS (agency and non-agency). Provided the necessary inclusion rules are met, US Aggregate eligible securities also contribute to the multi-currency Global Aggregate Index and the US universal Index, which includes high yield and emerging markets debt. The US Aggregate Index was created in 1986 with history backfilled to January 1, 1976. Investors cannot invest in an index.

Bloomberg Barclays 1-10 Year US Government Inflation-Linked Bond Index tracks the 1-10-year inflation protected sector of the United States Treasury market. Investors cannot invest in an index.

Bloomberg Barclays US Treasury 1-3 Year Index measures the performance of public obligations of the US Treasury with maturities of 1-3 years, including securities roll up to the US Aggregate, US Universal, and Global Aggregate Indices. Investors cannot invest in an index.

Bloomberg Barclays US Treasury Bellwethers 3 Month Index is an unmanaged index representing the on-the-run (most recently auctioned) US Treasury bill with 3 months’ maturity. Investors cannot invest in an index.