Markets “In a Nutshell” for July 2, 2019

Investment Week at a Glance

Stocks finished mixed for the week. The Dow Jones Industrial Average was down 0.45%, the S&P 500 fell 0.29 %, the New York Stock Exchange Composite (2,000 stocks) rose 0.02% and the average investors index (Value Line Index) was up 1.09%. Foreign stocks (DJ Global ex U.S.) were up 0.38%. Bond prices were up for the week, pushing the yield on the 10-year U.S. Treasury down 7 basis points to end the week at 2.00%. (Data source: Wall Street Journal)

Markets Finish Strong in 1st Half

The S&P 500 finished the month of June up almost 7% and up 17% for the 1st half of the year as markets have fought through and grinded higher despite a swarm of negative headlines regarding trade, a slowing economy and lackluster earnings predictions. The highlights of the 1st half included a sharp pivot by the Federal Reserve on its interest rate path, shifting from thinking about pausing rate hikes at the end of 2018 all the way to having the market predicting that there is a 100% chance of a rate cut in July based on 3-Month Treasury interest rates. While the trade war with China has hit a particular rough patch of negotiations, the market has mostly shrugged off the uncertainty around it and still expects a compromise, while accepting a longer, drawn out process. (Barron’s)

G-20 Meeting Opens Door for Trade Talks

As leaders from the top 20 economies in the world met in Japan this week, the world was focused on only 2 of them. Presidents Trump and Xi of China met this weekend and decided to put a pause on any further retaliation and allow for further negotiations to resume. Both presidents yielded some concessions, with Trump allowing some suppliers to still do business with Huawei, a Chinese telecommunications company that has been blacklisted for intellectual property theft and state-sponsored spying, while Xi resumed purchases of American agricultural products. While both of these concessions could easily be reversed, the simple fact that both countries continue to talk will give hope to markets that a deal remains a likely possibility and will allow for markets to continue churning higher. (Barron’s)

Bond Yields Continue to Fall

Global bonds continue to see high demand, which is seen by many as a direct contradiction to higher stocks so far this year. Currently over $13 trillion have negative yields, which can only be seen as a flight to safety for investors who would otherwise lose money on this investment. But with stock prices continuing to rise globally, clearly the market is still willing to put some capital into riskier assets. This may be a short term phenomenon, but this may be a critical inflection point for the bull market, where bonds and stocks are sending very different signals and only one can be right. With Central Banks around the world seemingly jumping to cut rates, it is possible that bond yields stay lower for longer and stocks continue to rise, but only time can tell. (Barron’s)

Quiz:

Contrary to the old saying “Sell in May and go away”, June was a historically strong month, with the S&P 500 rising almost 7%. What was the last year the index rose this much in June?

a. 1935

b. 1955

c. 1975

d. 1995

Answer is below…

 

Have a good week!

 

Answer to quiz:

b. The S&P 500 last rose at least 7% in June in 1955 (Barron’s)