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Week in Review

Week Ending: Friday, July 12, 2019

Recap & Commentary

Domestic equity markets rallied to new all-time highs following Congressional testimony by Fed Chair Jay Powell. Over the course of the week, the Dow Jones Industrial Average, the NASDAQ, and S&P 500 all reached new record highs.

Speaking before Congress during two days of testimony, Fed Chair Jay Powell left little doubt that the Federal Reserve will lower the federal funds rate at its next policy meeting at the end of July. In discussing the Fed’s economic outlook, Powell stated that since the Fed’s June meeting “based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook. Inflation pressures remain muted.” Powell did state, however, that the Fed’s baseline outlook “is for economic growth to remain solid, labor markets to stay strong, and inflation to move back up over time to the Committee's 2 percent objective.”

It was that statement, in conjunction with recent data, that had some economists questioning exactly why the Fed seems so intent on cutting rates. June’s nonfarm payroll additions of 224k comfortably exceeded the consensus estimate of 165k. Inflation data was also stronger-than-expected with both headline and core consumer prices exceeding expectations. While the market clearly expects a rate cut at the end of July- current expectations are 100%- and perhaps two more before the end of the year, not every market observer agrees with the need for the cuts. Some have opined that the Fed should defer cutting rates until such time that the economy shows more signs of slowing; not when unemployment is near a 50-year low, and stock markets are at record highs.

Economic Bullet Points

Inflation — The headline Consumer Price Index (CPI) reading for June rose an incremental 0.1% from the prior month as prices were held down by a 2.3% drop in the energy prices. Core CPI, however, which excludes the more volatile food and energy components, rose an above-consensus 0.3%, the largest monthly increase since January 2018. Year-over-year, headline CPI has eased to 1.6% from 1.8% in May, but core prices have increased to 2.1% from 2.0% due partly to tariff pressures. Similarly, the Producer Price Index (PPI) edged up 0.1% in June at the headline level, while core PPI rose a greater-than-expected 0.3%, the most in eight months. The increase at both levels was led by strengthening trade services prices, which rebounded 1.3%. Year-over-year, headline PPI slid to 1.6% from 1.9%, while core PPI has held steady at 2.3%.

US Consumer Credit increased in May to $17.1B, expanding at a solid pace for the second straight month. Overall, US consumer borrowing has remained strong due mainly to higher wages and job growth.

Small Business Optimism fell short of expectations in June, consistent with similar declines in other business sentiment readings, which are softening in reaction to trade disputes and concerns surrounding slowing economic growth.

Of Note

On Wednesday, the last Volkswagen Beetle rolled off the assembly line. First introduced in the 1930s, Volkswagen went on to sell 21.5 million Beetles globally, including five million in the U.S. alone.

Market Indices Week of 6/29

S&P 5001.3%
Small Caps-0.4%
Intl. Developed-0.6%
Intl. Emerging-0.5%
U.S. Bond Market-0.3%
10-Year Treas. Yield2.11%
US Dollar-0.5%
WTI Oil ($/bl)$60
Gold ($/oz)$1,416

The Week Ahead

  • Retail Sales
  • Industrial Production
  • Housing Starts
  • Consumer Sentiment
  • Leading Indicators

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