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Stocks Hit New Records For the week of June 24, 2019

Key Market Data

06/14/2019 06/21/2019 One Week Change YTD One Year
S&P 500 Index 2,886.98 2,950.46 +2.20% +18.87% +9.48%
MSCI EAFE Index 1,870.17 1,911.18 +2.19% +13.77% +0.83%
Barclays Capital U.S. Aggregate Bond Index 2,152.94 2,162.42 +0.44% +5.66% +7.75%
10-year Treasury Note Rate 2.081% 2.056% -2.5 basis points -62.9 basis points -84.2 basis points

Stocks hit new record highs as central bankers indicated they were ready to act to boost global growth. The S&P 500 posted a record close on Thursday and the Dow hit an intraday high on Friday. In fact, if those two indexes finish the month at their current pace — a 7.3 percent gain for the S&P 500 and a 7.8 percent increase for the Dow — it would mark the best June for them since 1955 and 1938, respectively. However, central banks wouldn’t be swinging into action unless there were concerns about a worldwide economic slowdown, so investors also moved into bonds last week, driving the yield on the U.S. 10-year Treasury briefly below 2 percent, while yields in Europe drifted into, or near, negative territory.

Stocks began to rise in earnest on Tuesday after President Trump said he spoke with China’s President Xi Jinping and confirmed that they’d have an “extended” meeting when the Group of 20 convenes in Japan this weekend. The president added that there was a “very good chance” of reaching an agreement on trade. On the same day Mario Draghi, the President of the European Central Bank, said that because of the economic slowdown and concerns about trade wars, the bank was ready to cut its rate and provide additional stimulus if required as soon as next month. President Trump responded by accusing Mr. Draghi of devaluing the euro and, “making it unfairly easy for them to compete against the USA,” adding, “They have been getting away with this for years, along with China and others.”

Then on Wednesday, the Federal Reserve left its rate unchanged. However, but the Fed indicated that it might lower its rate at the end of July if the economy remained at risk from trade wars and if inflation continued to fall short of the Fed’s 2 percent target. In its statement, the Fed dropped the word “patient” to describe its stance toward a rate change. At his post-meeting press conference, the Fed’s Chairman, Jerome Powell, said, “The committee felt that the right thing to do was to wait and see more.” But Powell added, “the case for somewhat more accommodative policy has strengthened.” More explicitly, he said, “[recent risks] have caused a number of us to write down rate cuts, and a number of those who haven’t to say that the case has strengthened.” Eight of the committee’s 17 voting members now expect a cut in 2019, and nine expect a lower rate by the end of 2020, though the cuts are expected to be modest (it would be the first rate cut since 2008).

The vote on rates this month was not unanimous — the first time that’s happened during Powell’s term as Fed chairman. James Bullard, president of the Federal Reserve Bank of St. Louis, voted to cut the rate. On Friday, Bullard said, “Even if a sharper-than-expected slowdown does not materialize, a rate cut would help promote a more rapid return of inflation and inflation expectations to target.”

Powell also weighed in regarding the ongoing criticism from President Trump, saying he “fully intended” to serve out his four-year term.

Pressure on China

Despite the fact that Presidents Trump and Xi are going to meet this weekend, the White House continued to put pressure on China last week. The Commerce Department announced restrictions on the sale of U.S. supercomputer technology to five Chinese companies. It has also been cutting the number of licenses given to Chinese nationals to work on engineering projects in the United States. In addition, the president of Huawei, which has been the target of U.S. sanctions, said the new rules would cost his company $25 billion in sales in 2019.

The price of crude jumps

The price of oil rose sharply late last week as tensions between the United States and Iran escalated when the Iranians shot down an unmanned U.S. drone. This came after a series of attacks on oil tankers that our government has blamed on Iran. Prices also climbed because of a fire at a major refinery in Philadelphia, with U.S. crude jumping 8.8 percent for the week.

The new NAFTA

Mexico became the first of the three countries to ratify the new United States-Mexico-Canada Agreement (USMCA) designed to replace NAFTA. The agreement was signed last year by all three countries but doesn’t go into effect until it’s been approved by all three legislatures. Canada’s Foreign Minister Chrystia Freeland said that Canada was going to move “in tandem” with the U.S. to approve the USMCA, but Democrats have expressed concerns about the deal.

Facebook and Slack

Facebook announced plans to launch its own cryptocurrency, Libra. Powell said that the Fed has “significant input into the payment system,” however members of Congress promised intense scrutiny of the plan.

Slack, the workplace messaging company, became the latest high-profile IPO of 2019, choosing to open with a direct listing, which meant that investors effectively set the price of the stock being offered. By the end of the first day of trading, the stock had soared 49 percent from the NYSE’s reference price of $26 to $38.62, a market valuation of about $23 billion.

In other news, housing starts declined 0.9 percent in May from April to 1.269 million and were down 4.7 percent from a year earlier. Applications for building permits rose 0.3 percent to 1.294 million, though they were off 0.5 percent from May of 2018. The National Association of Realtors said existing home sales advanced 2.5 percent in May from April to an annual rate of 5.34 million, helped by mortgage rates, which recently have fallen back below 4 percent for a 30-year fixed mortgage. Existing home sales fell 1.1 percent from a year earlier. The National Association of Home Builder’s index fell from 66 in May to 64 in June. Despite concerns about trade, Bloomberg’s consumer comfort index rose to 61.8 last week, its second highest reading since 2000. And first-time jobless claims for the week ending June 15th fell 6,000 to 216,000; the four-week moving average rose 1,000 to 217,750.

A look ahead

This week’s release will include updates on the S&P CoreLogic Case-Shiller home price index, new and pending home sales, consumer confidence, retail inventories, and personal consumption expenditures. The government will also issue its latest revision for first-quarter GDP, forecast to come in at 3.2 percent. Commentary is written to give you an overview of recent market and economic conditions, but it is only our opinion at a point in time and shouldn’t be used as a source to make investment decisions or to try to predict future market performance. To learn more, click here.