Investment Commentary – July 30, 2019


For the first time since the start of the recession more than a decade ago, the Federal Reserve is poised to cut interest rates in hopes of shielding the 11-year economic expansion from growing global uncertainties.

The central bank is expected to announce its decision on interest rates Wednesday at 2 p.m. ET.

The gradual decrease in the benchmark federal funds rate — economists anticipate the U.S. central bank to lower it by a modest quarter of a percentage point — will end an era of monetary tightening by policymakers, who have voted nine times since 2015 to raise interest rates, as recently as December.

“The next question is going to be will there be any further cuts after this?” said Josh Wright, the chief economist at iCIMS and a former Fed staffer. “I think certainly these numbers will make it very easy to say one and done. We feel good about it now, and now we need to let this one cut seep through, so you’re going to let that feed through, barring any major developments.”

The expected cut will likely placate President Trump, who frequently belittles the Fed, and its chairman, Jerome Powell, for raising interest rates too high, too quickly. On Tuesday, ahead of the Federal Open Market Committee’s two-day meeting, Trump reiterated his criticisms, calling on the Fed to make a “large” rate cut.

“I would like to see a large cut, and I would like to see immediately the quantitative tightening stop,” he told reporters outside of the White House.

Stocks end lower as China trade deal hopes wane and corporate earnings come in mixed

Fed interest-rate cut expected Wednesday; British pound extends tumble

Stocks closed slightly lower Tuesday after President Donald Trump renewed his attacks on China, undermining hopes for a trade deal between the world’s two largest economies, while investors digested mixed corporate earnings reports.

Investors also awaited the Federal Reserve’s decision on interest rates due Wednesday, with a quarter-of-percentage-point cut expected, even as the latest string of U.S. economic data appeared healthy.

How are the major benchmarks faring?

The Dow Jones Industrial Average DJIA, -0.09% closed down 23.33 points, or 0.1%, at 27,198.02, while the S&P 500 index SPX, -0.26% fell 7.79 points, or 0.3%, to 3,013.18 and the Nasdaq Composite Index COMP, -0.24% retreated 19.71 points to 8,273.61, a slump of 0.2%.

All three major benchmarks finished off their lowest levels of the session.

What’s driving the market?

President Trump ratcheted up pressure on China to quickly reach a trade deal, warning that if he is re-elected next year, the terms of an agreement would be much tougher than what is currently being discussed.

U.S. delegates including Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer are in Shanghai for meetings with their Chinese counterparts, but hopes remain low for a breakthrough as neither side appears eager to make a deal.

Around the Web:

Earnings ramp up: Quarterly earnings season is entering its busiest week, and the vast majority of companies that have reported results so far exceeded analysts’ expectations. Among S&P 500 companies that had released second-quarter numbers as of Friday, 77% had topped forecasts, exceeding the average earnings beat rate of the past five years, according to FactSet.

Tech-driven gains: After a modest setback the previous week, the major stock indexes regained their recent upward momentum, with the NASDAQ and S&P 500 climbing around 2% and outperforming the Dow by wide margins. Strong earnings results from key information technology and communication services companies lifted the broader market.

Record results: With Friday’s gain, the S&P 500 hit its 13th record closing high for 2019. Friday also marked the fourth day in a row that the index closed above 3,000—a threshold that it first crossed on July 12, only to fall back down below that level for the subsequent four trading sessions.

Upcoming Events:
Wednesday: U.S. Federal Reserve Board concludes two-day policy meeting, Chairman Jerome Powell holds press conference

Year to Date Market Indices as of Market Close July 30th, 2019
Dow 27,198 (16.59%)
S&P 3,013 (20.20%)
NASDAQ 8,273 (24.69%)
Gold $1,431 (11.43%)
OIL $58.15 (26.94%)
Barclay Bond Aggregate (6.21%)
All World Index (16.35%)
Fed Funds Rate 2.50
US Real GDP Growth 2.1 Q2/2019 (Down from 3.1 in Q1)

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.