Investment Commentary – August 27, 2019
Year to Date Market Indices as of Market Close Aug 27, 2019
• Dow 25,777 (10.50%)
• S&P 2,869 (14.45%)
• NASDAQ 7,826 (17.96%)
• Gold $1,551 (20.78%)
• OIL $55.62 (21.41%)
• Barclay Bond Aggregate (8.74%)
• All World Index (11.73%)
• Fed Funds Rate 2.25 (-0.25 rate cut 7/31/19)
• US Real GDP Growth 2.1 Q2/2019 (Down from 3.1 in Q1)
Stocks end choppy session lower as Treasury yields decline
Stocks ended lower Tuesday in a back-and-forth trading session, weakening as Treasury yields came under pressure and a key measure of the yield curve moved further into inversion territory.
The Dow Jones Industrial Average DJIA, -0.47% declined around 122 points, or 0.5%, to close near 25,777, according to preliminary figures, while the S&P 500 SPX, -0.32% lost around 9 points, or 0.3%, to finish near 2,869. The Nasdaq Composite COMP, -0.34% ended near 7,827, a fall of around 27 points, or 0.3%. The yield on the 10-year Treasury note closed at its lowest level since July 2016 and moved further below the yield on the 2-year note. An inversion of the curve is seen as an often reliable warning signal of future recession.
Pound plunges as Boris Johnson’s bid to suspend Parliament raises no-deal Brexit fears
The pound plummeted on Wednesday as British Prime Minister Boris Johnson set out plans to suspend Parliament, slashing MPs’ hopes of blocking a no-deal Brexit.
The move would see Parliament suspended for five weeks before returning on Oct. 14—less than three weeks before Britain’s scheduled departure from the EU on Oct. 31.
Sterling GBPUSD, -0.6184% plunged 0.7% to $1.2201 and was the world’s worst-performing currency on Wednesday morning.
Johnson’s controversial move to prorogue Parliament, viewed as a bid to force through a no-deal Brexit, sent the pound plunging.
The government has asked the Queen to suspend Parliament from the week of Sept. 10.
Johnson’s political opponents blasted the timetable, which would limit MPs’ ability to block a no-deal Brexit.
Markets fear a no-deal Brexit, which the Bank of England’s worst-case scenario predicted would see sterling crash to parity with the U.S. dollar for the first time in its history.
Citi economist Christian Schulz said: “The timing is convenient, it would shorten the time for Parliament to force the government away from a no-deal Brexit by two weeks.
“The no-deal opposition, especially the up to 40 Tory rebel MPs, is under pressure to demonstrate how far it is prepared to go to stop no-deal Brexit.”
He added that it was now more likely that a no-confidence vote in the government would be called next week.
“Many bumps and twists remain, but today’s announcement makes our base case, another Brexit delay and a general election, more likely.”
Around the web
Rate outlook: With the U.S. Federal Reserve widely expected to cut interest rates again at its next policy meeting in mid-September, Chairman Jerome Powell on Friday didn’t commit to any sharp rate reductions or other aggressive moves to stimulate economic growth. In an address before a global monetary policy conference, Powell said the Fed “will act as appropriate to sustain the expansion.”
Market fallout: In the wake of Friday’s trade and monetary policy news, the major stock indexes dropped 2% to 3% for the day, with the NASDAQ and information technology stocks posting the biggest declines. Prices of many commodities also tumbled.
Yield push-pull: U.S. Treasury bond yields climbed early in the week, with the 10-year yield rising above 1.60%. But Friday produced another bond price rally, sending the yield back down to 1.52%. In Germany, the yield of the government’s 30-year bond was negative for the first time ever.
Upcoming this week:
Thursday: Second-quarter GDP, second estimate, U.S. Bureau of Economic Analysis
The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.