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Week in Review

Week Ending: Friday, July 5, 2019

Recap & Commentary

The S&P 500 index, alongside several other major US indexes, extended recent gains and closed near record highs as investors viewed positively news that the US and China agreed to suspend additional tariffs and resume trade negotiations. Investor sentiment was also strengthened, as evidenced by rallying semiconductor stocks after President Trump decided to ease a ban on sales of chips to Chinese telecommunications giant Huawei Technologies. 

On Monday, of the holiday-shortened week, the current US economic expansion entered its 121st month, giving it the official title of, “longest on record” in modern American history. According to the data, the current expansion started in June of 2009, and on July 1st, it surpassed the prior record set from March 1991 to March 2001. While the longevity of the US expansion has elevated concerns about when the next downturn will occur, it’s important to remember that economic expansions don’t simply “die of old age.” They are instead kick-started by a significant misstep in economic policy, or when a growing economic imbalance becomes too large for the market to ignore. That said, despite the longevity concerns, the Fed has taken on a more market-friendly stance lately, and recent economic data points to a moderating rather than a contracting US economy.

As of July 3rd, the estimated Q2 2019 earnings decline for the S&P 500 is -2.6%. If the -2.6% estimate translates into the actual decline for the quarter, it will mark the first time the index has reported two straight quarters of year-over-year declines in earnings since Q1 2016 and Q2 2016.

Economic Bullet Points

US Manufacturing — June ISM and PMI manufacturing data came in above 50, which signals that manufacturing is still in expansion territory despite heightened uncertainty over trade policy. However, at 51.7 and 50.6, respectively, both surveys have softened significantly since the cycle peak which reinforces expectations that economic growth will be modest through year-end.

US Services data fell to the slowest pace since July 2017. This trend is an indication that tariffs are now weighing on service-sector sentiment and contributing to higher input costs for businesses.

International Trade — The US trade deficit widened for the third straight month in May. Overall, goods exports have yet to return to pre-trade war levels.

US Employment rebounded in June with employers adding a greater than expected 224K new jobs. This figure pushed the three-month average up to 171K from 147K. Importantly, the rebound confirms that the job market thus far remains healthy. However, there were several signs that the labor market is cooling, especially in trade-related industries. Additionally, with wage growth still not threatening inflation, coupled with a slight uptick in the unemployment rate, the Fed will, more likely than not, cut interest rates in July.

Of Note

Outgoing head of the International Monetary Fund (IMF), Christine Lagarde, was named as the new President of the European Central Bank (ECB). Ms. Lagarde will succeed current President Mario Draghi, who must step down after reaching his eight-year term limit.

Market Indices Week of 7/5

S&P 5000.8%
Small Caps0.5%
Intl. Developed1.4%
Intl Emerging0.9%
Commodities-0.7%
U.S Bond Market0.3%
10-Year Treas. Yield2.04%
US Dollar1.2%
WTI Oil ($/bl)$57.56
Gold ($/oz)$1,403

The Week Ahead

  • Consumer Price Index
  • Producer Price Index
  • Consumer Credit
  • Small Business Optimism
  • Jobless Claims

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