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Week in Review

Week Ending: Friday, June 28, 2019

Recap & Commentary

The second quarter ended on a quiet note, with market returns relatively muted in advance of the G-20 Summit. Despite a number of well-known concerns facing the markets, the S&P 500 returned 17% in the first half of the year, its best first half in more than two decades. Not to be outdone, U.S. investment grade corporate bonds recorded their best ever start to a year.

Last week, markets were bolstered by Fed commentary suggesting that the central bank was prepared to cut interest rates in response to slowing economic conditions. On Tuesday, speaking before the Council on Foreign Relations, Fed Chair Jay Powell did not necessarily try to disabuse investors of that notion, but did appear to try tempering expectations that the Fed might cut rates as many as three time before year-end, which the market currently expects. Powell noted that “Many FOMC participants judge that the case for somewhat more accommodative policy has strengthened. But we are also mindful that monetary policy should not overreact to any individual data point or short-term swing in sentiment. Doing so would risk adding even more uncertainty to the outlook.”

Expectations ahead of the G-20 Summit regarding a resolution to the current U.S./China trade war were relatively muted. Thus, the announcement that the two countries had agreed to resume talks was probably the best that investors could expect. As the collapse of talks in early May demonstrated, reaching a comprehensive agreement will be challenging given the significant difference of opinion held by the two countries on a number of different issues.

Economic Bullet Points

GDP- The final estimate for 2Q19 GDP growth was unrevised at 3.1%. Behind the headline number, upward revisions to business and government spending, exports, and housing were offset by downward revisions to consumer spending and inventory investment.

Housing data- New home sales data and pricing data continued to point to tepid conditions in the housing sector. New home sales fell -8% in May, while slowing to their slowest pace since December. Median prices also fell -8% for the month, to $308k. Pricing, as measured by the Case-Shiller index, was also weak, slowing to 2.5% year-over-year, a seven-year low.

Durable Goods Orders fell -1.3% in May, due to declines in civilian aircraft orders, largely reflecting continued fallout surrounding Boeing’s 737-Max aircraft. Core durable goods orders, however, rose 0.4% indicating that businesses continue to invest despite ongoing trade policy concerns.

Consumer Confidence in June fell, missing expectations, in what may have been a delayed reaction to the escalation in trade tensions during May. The jobs hard to get component, closely watched by economists, was noticeably higher which may portend a disappointing June employment report.

Of Note

OPEC, Russia and other producers, commonly referred to as OPEC+, agreed to maintain current production cuts of 1.2 million barrels per day (mbd) for the next six to nine months. Prices have recently faced downward pressure on rising U.S. production and concerns about global demand. According to government figures, U.S. production in April set a new monthly record of 12.2 mbd.

Market Indices Week of 6/28

S&P 500                            -0.1%

Small Caps                          1.1%

Intl. Developed                  0.1%

Intl. Emerging                  0.2%

Commodities                     1.0%

U.S. Bond Market             0.4%

10-Year Treas. Yield         2.01%

US Dollar                            0.0%

WTI Oil ($/bl)                       $58

Gold ($/oz)                        $1,412

The Week Ahead

  • ISM Manufacturing
  • ISM Services
  • Factory Orders
  • International Trade
  • June Employment Report

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