Published June 21, 2019
This week, we offer not a single particular point, but instead a couple of market observations.
First up, commodities:
While stocks have pushed toward new highs this week, we note another potential shift in the markets. Commodities might be ready to join the upward move. The commodity-heavy Australian stock market is breaking out. And gold is also on the cusp of lifting to its highest levels in a few years. If the U.S. dollar begins to slump, look for commodity-focused assets to rip higher.
Second up, the fabulous Federal Reserve:
The bull market of the 1990s was driven by a revolution in computing power and technology. It will be said that the bull market of the 2010s was driven by an activist Federal Reserve (and proactive central banks globally). Interest rates today are LOWER than they were at the worst of the financial crisis. The Fed has delivered essentially zero percent “real” (after inflation) interest rates for much of the past eight years. Cheap (“free”) money eventually leads to excesses. It’s just not yet clear where those excesses are and who will be found exposed when the inevitable economic tide washes back out.
This week’s jump higher in stock prices was another reminder that the activist Fed plays a major role in supporting investors to take risk.
Stocks pushed to new highs this week pleased with the results of the Federal Reserve meeting. Monday showed little movement outside of strength in the Nasdaq, driven in part by a positive read of Facebook’s entre into the cryptocurrency arena. Facebook’s +4% lift helped the Nasdaq to a +0.6% result while the broader market was flat. President Trump’s announcement of an upcoming resumption of trade talks with China dovetailed with market-friendly comments from the European Central Bank to push stocks higher by +1% Tuesday. Wednesday’s announcement by the Fed to be more open to an interest rate cut kept stocks moving higher. Strong earnings from software maker Adobe offered additional good news. Stocks rose +0.3% on the day with interest rates taking another leg lower to almost 2% on the 10-year Treasury yield. The downing of a U.S. military drone in the Persian Gulf sent oil prices higher Thursday. Strong earnings from another software company, Oracle, added to the continuation of good cheer around easier global central bank policy to send stocks on another run upward. The +0.9% rise on the day sent large-cap indexes into record territory with weakness in the U.S. dollar providing strength for international indexes. Stocks took a rest Friday after a solid week, closing down slightly Friday.
Stocks zipped higher this week with the S&P 500 (SPY) adding +2.13%. The Nasdaq 100 (QQQ) did not achieve a record but came close after a +3.25% gain. Small-caps (IWM) continued to find lesser gains with a +1.82% rise this week.
Warm wishes and until next week.