Weekly Market Updates
Week Ending July 5
The S&P 500 reached record levels to start Wednesday's shortened trading session before dropping after the holiday to close out last week with a 1.69% return. Friday's job report added to the case that an interest rate cut by the Federal Reserve is not as necessary as President Trump believes. Chairman Powell has maintained the Fed's political independence, but a possible shift of opinion on the Board of Governors is looming with the potential nomination of some of the President's partisan allies. Ten of the 11 sectors in the S&P 500 traded higher last week.
Treasury yields rose last week, boosted by a stronger-than-expected U.S. jobs report released on Friday. The report showed that the U.S. economy added a robust 224,000 jobs in June, well above the forecasted gain of 165,000. June marked 105 consecutive months that the U.S. economy has added jobs, the longest streak on record. The last month the U.S. economy lost jobs was September 2010. The report also showed that average hourly earnings for all employees increased 3.1% from a year ago, near February's 10-year high of 3.4%. Despite the strong jobs report, the Federal Reserve is still widely expected to cut interest rates at its July 30-31 meeting. Meanwhile, International Monetary Fund chief Christine Lagarde was nominated to succeed Mario Draghi as president of the European Central Bank when his term ends on October 31.
Week Ending June 21
Despite a leap in geopolitical risks, continued trade disputes and spotty economic data, the S&P 500 Index closed at it's all time high last week. Fueled by the Federal Reserve's dovish comments Wednesday, along with an equity rally in Europe Thursday, the S&P 500 index returned 2.2% last week. Last week's headlines were dominated by Iranian-U.S. relations. On June 14th Iran bombed two oil tankers around the Strait of Hormuz. To start last week, Iran shot down a $130m U.S. drone that was flying international airspace. Friday, U.S. President Donald Trump had prepared retaliatory action on three Iranian sites, but at the last minute called off the counter measures. Turning gears, the Federal Reserve announced that interest rates would remain unchanged after their June meeting.
Treasury prices rose over the course of the week as the Federal Reserve signaled that monetary policy would be eased later this year. On Wednesday, the Fed kept interest rates unchanged with a range of 2.25-2.50, however, it removed the phrase "patience" from its policy statement. In addition, the Fed added skepticism that the economic outlook improved and revealed a "dot plot" that showed seven board members forecasted two rate cuts by the end of 2019. It was reported that President Trump contemplated demoting Fed Chairman Jerome Powell as Trump has repeatedly called for rate cuts. The European Central Bank President Mario Draghi also signaled that the ECB would use measures to boost the eurozone and insisted he could use further rate cuts.
Week Ending June 7
On Friday, the U.S. labor market report showed job creation trailed estimates in May. The negative jobs news caused stocks to rally due to the possible increased willingness of the Federal Reserve to cut interest rates later this year. Optimism over a looser monetary policy coupled with concern over trade will keep investor sentiment more balanced and cautions. The positive sentiment in stocks is offset by a more pessimistic view in bonds. On the trade front, President Trump is still going after both China and Mexico. The Mexico deal looked to unraveling earlier in the week, but his tweet stream provided contradicting updates ending with the President seeing a "good chance" of a deal with our southern neighbors. The implications of the Mexico deal are still cloudy after some companies looked to the country as a safe haven from the impending tariffs with China.
U.S. Treasury prices continued to rise last week as tariffs and weak headline economic data raised concerns about the economy. Treasury bond yields fell on Monday as fears of an economic slowdown ratcheted up after President Donald Trump launched a second tariff front, this time on Mexico. On Tuesday, Treasury bond yields attempted a comeback as Federal Reserve Chairman Jerome Powell and other Fed officials cooled concerns over the United States slowing economy. Fed Chairman Powell asserted that the Fed will "act as appropriate to sustain the expansion."