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Market Bullets - Weekly Update

For the market week ended Friday, July 19, 2019

  • After touching all-time highs early in the week, US Equity Markets ultimately moved lower last week in uninspired trading, as relatively strong economic data derailed any residual hopes for a 0.50% rate cut at the upcoming Fed meeting. The S&P 500 dropped 1.2% for the week and is now up 18.7% for the year. The Nasdaq also fell 1.2% for the week to reduce its gains for the year to a still-robust 22.8%, while the Russell 2000 (small-cap stocks) declined 0.8% for the week and is now up 15.8% for the year.
  • Global equity markets were mixed last week, as geopolitical concerns resurfaced in the Middle East with Iran seizing a British oil tanker, leading to declines in European markets. Developed Markets fell 0.2% for the week but remain up a healthy 12.3% for the year. Emerging Markets fared better last week amid a rise in some key commodity prices. For the week, Emerging Markets rose 0.6% and are now up 9.5% for the year.
  • US economic data came in quite strong last week. Retail Sales for the month of June increased a better-than-expected 0.4%, while a key measurement of US manufacturing activity (Philadelphia Fed Index) rose sharply for the month of July. Paradoxically, the strong data reduced the likelihood that the Fed would cut rates by 0.50% at its July 30-31 meeting, though Wall Street continues to expect a 0.25% rate reduction.

Of Interest to Us...

  • The yield curve, which measures the yields of US Treasuries that mature at different time frames, has begun to steepen, potentially alleviating some investor fears that an economic recession is around the corner. Historically, an inverted yield curve, which occurs when 2-Year Treasuries yield more than 10-Year Treasuries, has often been a precursor to a recession. After reaching a spread of only about 10 basis points a couple of months ago, the spread has increased, with 10-Year Treasuries now yielding 24 basis points more than 2-Year Treasuries, potentially suggesting an improving economic outlook.