Market Recap - Rate Cut Hopes Fuel Another Week of Gains

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The Stock Market Recorded Its Second Consecutive Week Of Gains, With The Dow (+1.5% For The Week), Nasdaq (+1.0% For The Week), And S&P 500 (+0.8% For The Week) Reaching Fresh Record Highs.

Equity indices saw limited movement on Monday and Tuesday, as investors awaited Wednesday's semiannual testimony on monetary policy. The market welcomed the testimony, considering comments made by Fed Chairman Jay Powell were seen as a sure sign that the FOMC will reduce the fed funds target rate range by at least 25 basis points on July 31.

Chairman Powell said that baseline expectations for solid economic growth remain in place, but he noted that the composition of growth in Q1 was poor due to net exports and inventories driving the overall increase. The Fed chairman also said that growth in consumer spending was weak in Q1 while business investment slowed notably. The dovish remarks led to another increase in expectations for a 50-basis point rate cut. At the end of the week, the fed funds futures market saw a 21.4% implied likelihood of a 50-basis point rate cut on July 31, up from 5.4% one week ago.

Fed officials have been pointing to weakening inflation metrics to justify the growing hopes for a rate cut, but economic data released this week showed a larger than expected increase in Core CPI (actual 0.3%; consensus 0.2%) and Core PPI (actual 0.3%; consensus 0.3%) in June. On a yr/yr basis, core CPI is up 2.1% while core PPI is up 2.3%. Meanwhile, the Fed's preferred inflation gauge, core PCE, increased 1.7% yr/yr in Q1, which is a faster rate than what was seen when the central bank began raising rates at the end of 2015 (1.2%).

The energy sector was the top performer of the week, climbing 2.2% since last Friday. The advance was supported by a 4.8% gain in the price of crude oil, which reclaimed its 50-day moving average (59.80), ending the week at $60.21/bbl.

Market Recap - Stocks Lose Ground But Still Finish Month Higher In Front Of G-20 Meeting

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The S&P 500 Declined 0.3% This Week, But Still Increased 6.9% This Month To Record Its Best June Since 1955. Price Action Reflected Some Consolidation In Front Of The G-20 Meeting Between President Trump And President Xi After Friday's Close.

The Dow Jones Industrial Average (-0.5%) and the Nasdaq Composite (-0.3%) trimmed their monthly gains to 7.2% and 7.4%, respectively. The small-cap Russell 2000 (+1.1%) played catch-up, increasing its monthly advance to 6.9%.

This week's laggards included the defensive-oriented S&P 500 real estate (-2.7%), utilities (-2.1%), health care (-1.2%), and consumer staples (-1.0%) sectors -- most of which had gotten richly valued ahead of end-of-the-quarter rebalancing. Outperformers included the materials (+1.5%) and financials (+1.5%) sectors. The Philadelphia Semiconductor Index climbed 3.4%, bolstered by better-than-feared guidance from Micron (MU).

There was no shortage of headlines and speculation leading up to the G-20 summit, which at the time of this writing was still in progress. If the consensus view holds true, then more headlines and speculation should be expected. The market was expecting President Trump and President Xi to agree to continue talks and hold off on any additional tariffs, which would placate the market while it continues to assess monetary policy.

St. Louis Fed President James Bullard (FOMC voter) had the market re-calculating its rate-cut expectations this week after he said he didn't think it was necessary to cut the fed funds rate by 50 basis points. Instead, he favored a 25 basis points reduction. This stance from one of the Fed's most vocal doves, who was also the lone dissident in this month's FOMC meeting, tempered growing hopes for a 50 basis points cut next month.

It's still widely expected that the Fed will cut rates, though. Muted inflation pressure indicated in the Fed's preferred inflation gauge -- the PCE Price Index -- and weakening regional PMI readings were the latest data points to assure the market's thinking.

In key corporate news, Boeing (BA) disclosed that the FAA asked it to address a risk that its 737 software patch overlooked, pushing back Boeing's timeline for a fix by another three months. AbbVie (ABBV) announced it will acquire Allergan (AGN) for about $63 billion, or $188.24 per share, in cash and stock.

U.S. Treasuries continued to advance, sending yields lower across the curve. The 2-yr yield declined ten basis points to 1.74%, and the 10-yr yield declined eight basis points to 2.00%. The U.S. Dollar Index was unchanged at 96.18. WTI crude advanced 1.8% to $58.38/bbl amid bullish inventory data and lingering U.S.-Iran tensions.

Market Recap - S&P 500 Sets New Record Highs on Expectations for Easier Monetary Policy

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The S&P 500 Gained 2.2% This Week, Setting New Intraday And Closing Records In The Process, On Indications That Central Banks Will Supply The Economy With Easier Monetary Policy If Conditions Do Not Improve.

The Dow Jones Industrial Average gained 2.4%, the Nasdaq Composite gained 3.0%, and the Russell 2000 gained 1.8%.

All 11 S&P 500 sectors finished higher with seven sectors rising at least 1.0%. Energy led the pack with a 5.2% gain, as oil prices surged over 9% amid escalating tensions in the Middle East.

Prior to the week, the stock market had been already been climbing on hopes that the Fed would signal it was willing to cut rates sooner rather than later. The Fed didn't cut rates in its policy meeting this week, and neither did the Bank of England or Bank of Japan, but the central bank did strike the dovishtone the market desired.

In its policy statement, the Fed removed the word "patient" and noted that it will act as appropriate to sustain the economic expansion amid increased uncertainties to the outlook. Several Fed officials, including Fed Chair Powell, and European Central Bank President Mario Draghi pointed to low inflation levels as a case for easier monetary policy.

As of Friday, the fed funds futures market saw a 100% implied likelihood of a rate cut at the end of July.

The market also welcomed some updates on the U.S.‐China trade front. President Trump said he will have an extended meeting with President Xi at G‐20 next week and that the teams will resume talks before the summit. The trade‐sensitive semiconductor stocks reacted positively, evident by 4.0% weekly gain in the Philadelphia Semiconductor Index.

Energy stocks also outperformed, buoyed by a 9.2% gain in the price of oil ($57.37/bbl, +$4.83) after Iran shot down a U.S. military drone over the Strait of Hormuz. President Trump ordered a retaliatory strike on Iran but said he called it off because he didn't think the damage inflicted would have been proportional to shooting down an unmanned drone.

Expectations for lower rates sent sovereign bond yields lower across the world. In the U.S, the 10‐yr note yield dipped below 2.00% for the first time since 2016, but ultimately finished at 2.07% or one basis points lower from last week. The 2‐yr yield declined six basis points to 1.78%. The U.S. Dollar Index fell 1.4% to 96.20.

Market Recap - Stocks gain as market eyes Fed policy decision, G-20 summit

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The S&P 500 increased 0.5% this week, lifted by shares of consumer discretionary companies as the market remained hopeful for positive outcomes in the Fed’s policy decision next week and the G-20 summit later this month.

The Dow Jones Industrial Average increased 0.4%, the Nasdaq Composite increased 0.7%, and the Russell 2000 increased 0.5%.

The week began on a high note as the market was relieved to hear that the U.S. and Mexico reached a deal to avert a 5% tariff rate on all good imported from Mexico. President Trump could still reinstate the tariffs, though, if the U.S. thinks Mexico is not doing enough to stop the flow of illegal migration through its borders.

The S&P 500 consumer discretionary (+2.4%), communication services (+1.4%), and utilities (+1.2%) sectors outperformed the broader market. The information technology (-0.2%), industrials (-0.4%), and energy (-0.5%) sectors were the lone sectors to finish lower.

At its high on Monday, the S&P 500 was up 6.1% in a span of six sessions. An understanding that the market may have advanced too far, too fast contributed to some tight-ranged sessions the rest of the week ahead of the Fed’s policy meeting next week and the G-20 summit at the end of the month.

Growing expectations for the Fed to signal a rate cut and lingering hopes that the G-20 summit can improve U.S.-China trade relations contributed to the positive disposition. As of Friday, the fed funds futures market was seeing an 86.4% implied likelihood of a rate cut in July. Those expectations were bolstered this week by muted inflation pressure in the Consumer Price Index for May.

These positive considerations also helped the market withstand geopolitical tensions and weakness in the semiconductor space.

The U.S. blamed Iran for the attack on two oil tankers that were operating near the Strait of Hormuz. Rising tensions helped provide some relief in the price of oil ($52.54, -$1.38, -2.6%), which fell on worries about demand and oversupply. The Philadelphia Semiconductor Index (-1.6%) was pressured by Broadcom (AVGO) after it warned of a slowdown in demand due to trade uncertainty and export restrictions on Huawei Technologies.

Separately, Raytheon (RTN) and United Technologies (UTX) agreed to an all-stock merger of equals, valued at roughly $120 billion, which was met with some resistance from activist investor Bill Ackman.

U.S. Treasuries finished little changed. The 2-yr yield remained at 1.84%, and the 10-yr yield increased one basis point to 2.09%. The U.S. Dollar Index advanced 1.1% to 97.57.

Market Recap - Stock market posts its best week this year on expectations for the Fed to cut rates

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The Stock Market Had Its Best Week In 2019, With The S&P 500 (+4.4%) And The Dow Jones Industrial Average (+4.7%) Each Rising Over 4.0%, On Expectations The Fed Will Cut Rates To Mitigate Slowing Growth. The Nasdaq Composite Advanced 3.9%, And The Russell 2000 Advanced 3.3%.

All 11 S&P 500 sectors finished higher with gains ranging from 0.9% (communication services) to 9.1% (materials). 

Coming into the week, the S&P 500 was down 6.7% from its record close, and market participants had sensed that the market was due for a bounce from a short-term oversold condition. The rebound effort was put on hold, though, as regulatory concerns surrounding Facebook (FB), Apple (AAPL), Amazon (AMZN), and Alphabet (GOOG) sent these widely-held stocks reeling on Monday.

Heavy losses from these FAANG stocks barely put a dent in the broader market, though, before the market quickly latched onto the idea that the Fed will be forced to cut rates at least once this year. These stocks recouped most, if not all, of their losses from Monday this week.

Several Federal Reserve officials, including Fed Chair Powell, acknowledged concerns about trade tensions and persistently low inflation levels. Mr. Powell even said that the Fed will act as appropriate to sustain the economic expansion, which the market interpreted as a signal for looser monetary policy. 

Deceleration in jobs growth and soft wage-based inflation in the Labor Department's Employment Situation Report for May bolstered these rate-cut expectations. The fed funds futures market sees a 85.6% implied likelihood of a rate cut at the July 30-31 FOMC meeting.

Nonfarm payrolls increased by just 75,000 ( consensus 180,000), and average hourly earnings increased 0.2% ( consensus 0.3%). Year-over-year, average hourly earnings were up 3.1% versus 3.2% in April.

Growing expectations for a rate cut sent the fed funds-sensitive 2-yr yield down ten basis points to 1.84%. The 10-yr yield declined six basis points to 2.08%. The U.S. Dollar Index fell 1.2% to 96.58. WTI crude increased 0.8% to $53.92/bbl. 

Separately, after President Trump surprised the market last week by announcing a 5% tariff rate on all imports from Mexico, the two sides reportedly made progress this week. Market participants hoped that the U.S. could delay the planned tariffs from going into effect on Monday.

Market Recap - S&P 500 registers first monthly decline in 2019 as investors dump equities and buy Treasuries

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The S&P 500 lost 2.6% this week and 6.6% this month, registering its first monthly decline in 2019. Lingering U.S.-China trade tensions and a surprise 5% tariff rate on Mexico from President Trump contributed to broad-based efforts to de-risk and seek safety in U.S. Treasuries.

The Dow Jones Industrial Average (-3.0%), the Nasdaq Composite (-2.4%), and the Russell 2000 (-3.2%) finished with monthly losses of 6.7%, 7.9%, and 7.9%.

No S&P 500 sector finished higher this week, and nine sectors finished with losses between 2.1% (materials) and 4.5% (energy). The negative disposition sent the S&P 500 below its 200-day moving average (2776) to close the week.

Another week came and went with no progress on the U.S.-China trade front. Instead, tensions appeared to escalate following negative developments throughout the week:

  • Chinese state media suggested that Beijing could use its dominant position in rare earth minerals to restrict exports.

  • Beijing reportedly put U.S. soybean purchases on hold in May.

  • China said it is drafting a list of "unreliable" foreign companies that harm the interests of its firms, increasing speculation about Chinese retaliation against the U.S.

The big headline on Friday, which helped accelerate weekly losses was President Trump announcing a 5% tariff rate on all goods imported from Mexico starting on June 10. The tariff rate will increase incrementally during the summer and reach 25% on Oct. 1 unless Mexico takes actions to curb the flow of undocumented migrants entering the U.S.

Investors continued to de-risk from the stock market, and bolster demand for U.S. Treasuries, fearful that these trade tensions will engender slower economic growth and lower earnings prospects. The 8.8% weekly drop in WTI crude ($53.48/bbl, -$5.14) also reflected concerns that slower growth will weaken end demand.

The 2-yr yield dropped 20 basis points to 1.94%, and the 10-yr yield dropped 18 basis points to 2.14%. For the month, the 2-yr yield fell 33 basis points, and the 10-yr yield fell 37 basis points. The U.S. Dollar Index advanced 0.2% to 97.76 this week.

Strikingly, 3-month yield finished 21 basis points higher than the 10-yr yield, widening this difference to its largest since the financial crisis. This term spread, according to research from the Federal Reserve Bank of San Francisco, is the most reliable predictor of a recession among the different term spreads.

Market Recap - Cyclical assets slide on trade uncertainty

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The S&P 500 lost 1.2% this week, as trade and growth concerns sent investors fleeing from cyclical assets and seeking shelter in U.S. Treasuries and low-beta stocks.

The blue-chip Dow Jones Industrial Average lost 0.7%, the tech-laden Nasdaq Composite lost 2.3%, and the small-cap Russell 2000 lost 1.4%.

The S&P 500 information technology (-2.8%) and the Philadelphia Semiconductor Index (-6.4%) underperformed on efforts to de-risk amid concerns that China could retaliate against U.S. tech companies. The S&P 500 energy sector lost 3.4%, as oil prices ($58.62/bbl, -$4.11, -6.6%) had their worst week in 2019. Concerns about global growth and end-demand contributed to the weakness in oil.

On the other hand, the defensive-oriented health care (+1.2%), utilities (+1.7%), and real estate (+0.3%) sectors outperformed.

It was a bit of a messy week leading up to these results, although a bit of good news did help tame selling interest.

Summing up the bad:

• Several companies around the world reportedly began to suspend business or cut ties with China’s Huawei Technologies.
• The U.S. is reportedly considering blacklisting several more Chinese firms after it put restrictions on Huawei last week.
• Trade rhetoric out of China grew more aggressive and nationalistic, while the U.S. reiterated that Huawei poses national security risks.
• Preliminary manufacturing data for the eurozone remained weak. 

Summing up the good:

• The U.S. granted Huawei a 90-day reprieve to continue to work with U.S. companies to service existing networks and mobile devices.
• Both sides appeared committed in striking a trade deal. President Trump said a solution to the Huawei matter could be included in a final deal.
• The minutes from the Apr. 30-May 1 FOMC meeting indicated that interest rates will remain low.

The takeaway is that the market appeared exhausted from the deluge of trade headlines that could swing from positive to negative on any given day. At the same time, the uncertainty in the outcome, and duration, of a trade dispute fed into concerns about economic growth and corporate earnings prospects.

U.S. Treasuries advanced in a flight for safety, driving yields lower in a curve-flattening trade. The 2-yr yield dropped eight basis points to 2.16%, and the 10-yr yield dropped 14 basis points to 2.32%. The U.S. Dollar Index declined 0.4% to 97.58.

Earnings reports were retail-heavy this week. Home Depot (HD), Target (TGT), TJX Companies (TJX), L Brands (LB), and AutoZone (AZO) advanced following their results. Kohl’s (KSS), Lowe’s (LOW), Nordstrom (JWN), Urban Outfitters (URBN), Foot Locker (FL), and Best Buy (BBY) all dropped sharply following their results/guidance.

Market Recap - Stocks Decline as Trade Tensions Escalate

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The S&P 500 Lost 0.8% This Week, As Trade Tensions Escalated Between The U.S. And China. The Benchmark Index Was On Pace For A Relatively Flat Week Despite The Negative Developments, Until News On Friday That Talks Have Stalled Sent Stocks Lower.

The Dow Jones Industrial Average lost 0.7%, the Nasdaq Composite lost 1.3%, and the Russell 2000 lost 2.4%.

China on Monday increased the tariff rate on $60 billion of U.S. imports to a floating range of 5-25%, from 5-10%, effective June 1. President Trump on Wednesday signed an executive order to protect U.S. technology from "foreign adversaries" that pose a threat to national security. Many viewed this as an attempt to weaken China's Huawei Technologies.

The former sent the S&P 500 down 2.4% on Monday and back below its 50-day moving average. The latter sent the Philadelphia Semiconductor Index (-5.2%) into the red, while every sector in the S&P 500 finished higher despite the negative implications.

In fact, the S&P 500 rallied all the way back to break-even at one point on Friday but hope for a flat week was dampened after CNBC reported that U.S.-China trade talks have stalled. Although not surprising given the negative rhetoric coming out of China and the prior developments, it did stoke concerns about potential retaliation from China. The S&P 500 finished the week below its 50-day moving average.

The S&P 500 financials (-2.1%), industrials (-1.9%), information technology (-1.1%), and consumer discretionary (-1.1%) sectors underperformed the broader market. The real estate (+1.4%), utilities (+1.2%), consumer staples (+0.9%), and communication services (+0.3%) sectors were the lone groups to finish higher.

Prior to the news, the market appeared to have decided that Monday's drop was a good buying opportunity. It took good news with stride, and it brushed off bad news. No news was reportedly good news.

Reports surfaced that the White House was going delay auto tariffs by up to six months and that it was close to resolving a tariff dispute with Canada and Mexico pertaining to aluminum and steel. The news assured investors that the U.S. would not be distracted in its trade talks with China by also having to deal with other tariff disputes. Both were confirmed on Friday with aluminum and steel tariffs agreed to be removed within 48 hours.

The reaction to economic data was no different. The good: housing starts picked up in April, initial jobless claims remained at historically low levels, and consumer sentiment hit its highest level in 15 years. The bad: retail sales and industrial production in the U.S. and China both came in weaker-than-expected for April.

U.S. Treasuries alternated between up and down days, but in the end, yields finished lower in a curve-flattening trade. The 2-yr yield declined three basis points to 2.21%, and the 10-yr yield declined seven basis points to 2.39%. The U.S. Dollar Index increased 0.7% to 97.99. WTI crude rose 1.7% to 62.73/bbl on increased tensions in the Middle East.

Market Recap - Stocks Fall in a Week Dominated By Trade Headlines

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The S&P 500 lost 2.2% this week on U.S.-China trade uncertainty, although a major reversal on Friday helped pare losses. The Dow Jones Industrial Average lost 2.1%, the Nasdaq Composite lost 3.0%, and the Russell 2000 lost 2.5%.

All 11 S&P 500 sectors finished lower with the trade sensitive information technology (-3.6%), materials (-2.8%), and industrial (-2.8%) sectors leading the retreat. The Philadelphia Semiconductor Index lost 5.9%.

The stock market entered the week near all-time highs before President Trump rattled global equity markets when he said he was going to increase the tariff rate on $200 of Chinese imports to 25% from 10%, effective at the end of the week. Slow trade progress and China reneging on its prior commitments prompted the President to take a hard-lined stance.

Beijing vowed retaliatory tariffs, but it still sent its chief negotiator, Vice Premier Liu He, to Washington to continue talks. Investors sought to de-risk from a richly-valued stock market, although each intraday low was met with renewed buying interest.

The trade angst also sent U.S. Treasuries higher in a flight for safety and boosted the CBOE Volatility Index (VIX) to 23.38 at its high from Friday’s closing level of 12.87. Both cooled down, though, as equities gained traction at the end of the week. The 2-yr yield declined eight basis points to 2.24%, and the 10-yr yield declined seven basis points to 2.46%. The VIX ended the week at 16.04.

President Trump’s tariff hike went into effect Friday, and he said there was no need to rush a trade deal, which sent stocks to their lowest levels of the week. Positive-sounding trade rhetoric, however, from Treasury Secretary Steven Mnuchin and China’s Vice Premier about the week’s trade discussions helped stocks stage a recovery.

Nothing was set in terms of next steps, but the U.S. is reportedly giving China three to four more weeks to reach a trade deal. President Trump also said the tariffs may or may not be removed depending on the outcome but is prepared to levy 25% tariffs on an additional $325 billion of Chinese imports.

In corporate news, Uber (UBER) made its highly-anticipated public debut on Friday, opening at $42 per share. That was below its IPO price of $45, which was already at the lower end of the $44 to $50 range. Chevron (CVX) decided to not provide a counteroffer to Occidental Petroleum’s (OXY) revised proposal to acquire Anadarko Petroleum (APC).

Market Recap - Upbeat U.S. Data and Strength in Mega-Cap Stocks Lift S&P 500 and Nasdaq to New Closing Records

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The S&P 500 (+1.2%) and Nasdaq Composite (+1.9%) each posted solid gains this week while setting new closing highs in the process. Strength in the U.S. economy and solid earnings reports from megacap companies contributed to the week’s upside bias.

The Dow Jones Industrial Average declined 0.1% following disappointing results/guidance from 3M (MMM), Intel (INTC), and Exxon Mobil (XOM).

U.S. economic data this week showed healthy pickups in new home sales and durable goods orders for March. The advance estimate for first quarter GDP also topped expectations, increasing 3.2% ( consensus 1.9%), while the GDP Price Deflator showed prices moderate more than expected.

Upbeat data, tame inflation, and strong earnings results from mega-cap companies like Amazon (AMZN), Facebook (FB), and Microsoft (MSFT), helped contribute to gains in most sectors. The health care sector (+3.7%) led the pace, bouncing back from last week’s 4.4% decline.

The narrative overseas, however, remains gloomy. 3M and Intel each called attention to a slowdown in demand from China while foreign economic data corroborated slowing growth expectations. South Korea’s first quarter GDP contracted by 0.3%, and Germany’s Ifo Business Climate Index remained on the decline. The Bank of Japan also expects rates to be kept at extremely low levels until at least the spring of 2020.

Weakness in 3M and UPS (UPS), meanwhile, contributed to the underperformance of the S&P 500 industrials sector (-1.0%), while Intel helped lead the Philadelphia Semiconductor Index (-0.7%) lower. The S&P 500 energy sector (-1.3%) also underperformed following weakness in Exxon Mobil and lower oil prices ($63.23/ bbl, -$-0.80, -1.3%).

Oil prices started the week on a higher note after the U.S. decided to end its waivers for countries to import oil from Iran. Prices reeled in following President Trump telling OPEC to keep fuel costs down on Friday.

U.S. Treasuries finished higher in a curve-steepening trade, driven by muted inflation and dovish monetary policy from central banks. The 2-yr yield declined 11 basis points to 2.27%, and the 10-yr yield declined five basis points to 2.51%. The U.S. Dollar Index rose 0.6% to 98.03.