Tuesday, July 30, 2019

Weekly Market Summary

Summary:  The broadest US equity indices made new all-time highs last week. Stocks have risen 6 of the past 7 months and by more than 20%. The summer months can see interim weakness, but this level of momentum has a strong propensity to carry stocks higher into year-end.

The FOMC is likely to lower its guidance rate tomorrow. When the economy is expanding and stocks are near their highs (like now), this has been a net positive for equities.

Sentiment data is inconclusive, but a 3-5% decline wouldn't be unusual at this point, especially as the typically weak August-October period is now here.

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The rally since early June has carried SPX more than 10% higher in just two months. July will likely end with US equities higher for the 6th time in the past 7 months (table from alphatrends.net). Enlarge any chart by clicking on it.

Monday, July 8, 2019

July Macro Update: Housing Remains The Weakest Link

Summary: A small "insurance" rate cut by the FOMC later this month appears warranted given ongoing weakness in housing, but the balance of the macro data remains positive, meaning a recession starting in 2019 is unlikely.

The bond market sees continued but modest growth. The yield curve has 'inverted' (10 year yields less than 2-year yields) ahead of every recession in the past 40 years (dots). The lag between inversion and the start of the next recession has been long: at least 7 months and in several instances as long as 2-3 years. The yield curve has not yet inverted; on this basis, the current expansion will likely to last through 2019 at a minimum (from JPM). Enlarge any image by clicking on it.