Investment Commentary – July 9, 2019

Year to Date Market Indices as of Market Close July 9, 2019
Dow 26,783 (14.82%)
S&P 2,979 (18.86%)
NASDAQ 8,143 (22.70%)
Gold $1386 (8.94%)
OIL $58.04 (27.53%)
Barclay Bond Aggregate (6.06%)
All World Index (15.52%)

US stocks mixed on trade concerns

U.S. stocks Opens a New Window. Traded in a tight range Tuesday, buoyed by rising tech stocks but burdened by concerns about the effect on earnings of a protracted U.S.-China trade dispute will have.

Traders also expect the Federal Reserve Opens a New Window. To forgo an interest rate cut.

Fed Chairman Jerome Powell will present his semi-annual testimony to the Congress on Wednesday and Thursday. His appearance will give investors an opportunity to gauge near-term monetary policy thinking. Also, the Fed will release the central bank’s June meeting minutes on Wednesday.

Top U.S. and Chinese Opens a New Window. Officials are expected to speak this week in an attempt to jump-start stalled trade negotiations Opens a New Window. Between the two nations, but many of the same tensions Opens a New Window. That undermined talks previously remain.

The yield on the 10-year Treasury edged up to 2.06 percent.

Crude oil prices rose: U.S. benchmark crude oil West Texas Intermediate climbed 22 cents to $57.88 per barrel.

Stocks with exposure to China traded lower including 3M, Boeing and Caterpillar.

PepsiCo reported better-than-expected profit and revenue as the company continues its shift to healthier snacks and drinks under a new CEO.

Gains in tech titans such as, Facebook and Netflix kept the Nasdaq positive through the day.

These S&P 500 sectors show this bull market has more to run

The U.S. stock market is telling a bullish story now. That’s because the sectors which typically perform best near the end of a bull market are showing weakness, while many of the sectors that usually perform the worst are doing quite well.

That’s what emerged from a comparison of S&P 500 SPX, +0.12% sectors’ recent behavior, with a ranking of sector performance over the last three months of past bull markets (back to 1970) that was compiled by Ned Davis Research. The best-performing S&P 500 sector over those months, on average, was Consumer Discretionary, according to that firm, followed by Health Care and Consumer Staples. The worst performers over those same months, on average, were Communication Services, Utilities and Energy.

(Note that “Communication Services” is a recently created category. For purposes of drawing historical parallels, I assumed it to be the successor to the now-defunct sector category of “Telecommunication Services.”)

It makes sense that different sectors would fare better or worse in the months immediately prior to a bear market beginning. Financials and Utilities suffer, for example, because interest rates typically rise over a bull market’s final stretch. At that same time, Consumer Staples stocks discount the relative strength they are likely to enjoy during the resulting economic downturn.

Around the Web:

Jobs rebound: After May’s weak jobs gain of 72,000, the 224,000 increase in the June report exceeded expectations, topping the average monthly increase so far this year. The latest monthly gain led analysts to suggest that the U.S. Federal Reserve could be less aggressive about cutting interest rates when it concludes its next policy meeting on July 31.

Fed chair in spotlight: U.S. Federal Reserve Chairman Jerome Powell is scheduled to make his semiannual monetary policy report to a House committee on Wednesday; the following day, he’ll appear before a Senate panel. Powell is likely to face questions about signals the Fed has recently sent about the potential for interest-rate cuts.

U.S.-China truce: Stocks got a strong start to the week after a meeting at the G20 summit in Japan eased tensions in the trade conflict between the United States and China. The countries agreed to resume negotiations, with the United States holding off on further tariff increases for now and China pledging to purchase additional U.S. goods.

Upcoming Events: Thursday: U.S. Federal Reserve Chairman Jerome Powell testifies before Senate Banking Committee

Other Notable Indices (YTD)
Russell 2000 (small caps) 16.62
EAFE International 14.07
Emerging Markets 8.33

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.