Uncategorized, Weekly Update

Stocks and bonds both pushing higher

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Published July 19, 2019


Below is a survey of markets through a series of charts with the idea being a quick scan to highlight the recent new highs, and how close other market indexes are to joining in those highs.  The run higher in stocks has been largely propelled by optimism over a new round of Federal Reserve interest rate cuts, with investors preferring to take an optimistic view that the cuts in rates will avert a possible recession.

After a year of back and forth trading, the large-cap U.S. stock indexes have broken out to new highs as shown in the charts below of the S&P 500 and Nasdaq 100 indexes.  Note that while the S&P 500 has cleared the 3000 milestone, the Nasdaq 100 (QQQ) has not yet cleared 8000   On the second chart, we have posted dotted lines to show the index’s behavior around prior round number levels – e.g. 6000 and 7000.

SPX has broken out to new highs

NDX has broken out to new highs

As has been the case for months now, the smaller company index lags well behind, some -10% away from new high ground.

Smaller company index lags well behind

While non-U.S. markets appear to be working their way upward, though less strongly than U.S. markets.

While non-U.S. markets appear to be working their way upward

The surge in bonds continues to be unusual as it is occurring at the same time as new highs in stocks. The following international bond ETF has shown a +10% rise in only nine months.

Surge in bonds continues

Investors are now looking to this quarter’s earnings reports to see if the Fed-induced rally is supported by better-than-expected earnings.  Expectations for corporate earnings have actually been negative for the just-completed quarter.  So there is room for positive surprises to add further upward thrust to the market’s rise and build our gains further.

Market Update

Investors got a heavy dose of earnings this week. Monday was flat ahead of a flurry of bank earnings coming Tuesday morning. Those earnings proved positive. However, the stock market’s response was muted. President Trump indicated that trade negotiations with China were not close to conclusion surprising stock investors. Indexes closed Tuesday with a -0.3% slip. Stocks tumbled again Wednesday by -0.6% on a weak report and outlook from railroad firm CSX. Stocks bounced back +0.3% Thursday with earnings reports generally positive and comments from a Fed member supporting lower interest rates. Further skirmishes in the Persian Gulf pressured stocks Friday after the market started the day higher. Markets slid throughout the day to a -0.7% loss in Friday’s trade.

For the week the S&P 500 slipped -1.17% while the Nasdaq 100 (QQQ) dipped -1.35%. Small-caps fell as well with a -1.43% weekly move.

Warm wishes and until next week.

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