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Weekly Commentary

ND&S Weekly Commentary (7.15.19) – Stock Market Milestones

US stocks achieved record highs last week buoyed by investors’ expectations that the Fed will lower interest rates at the end of the month. The Dow Jones Industrial Average (DJIA) was up 1.54%, while the S&P 500 climbed 0.82% and the NASDAQ rose 1.01%. International equities continue to be weighed down by trade tariffs and delayed negotiations. Developed international stocks (EAFE) slipped 0.54% and the emerging market equity index (EEM) declined 0.75%.

Fed chairman Jerome Powell hinted at a possible reduction in the Federal Funds Rate during the FMOC meeting on July 30-31. Powell said that below baseline inflation target of 2% could stifle economic growth and the central bank will “act as appropriate” to maintain the US expansion.

The Trump administration abandoned a proposal for rebates from governmental drug plans and a federal judge blocked the proposed rule requiring drug makers to list drug prices on television. Healthcare stocks rallied and then settled back down declining 1.64%.

Citigroup (C), JP Morgan (JPM), Goldman Sachs (GS) and Wells Fargo (WFC) report second quarter earnings on Monday and Tuesday. The low interest rate environment and weak trading volume have tempered earnings expectations. Bank revenues, earnings and guidance are key drivers of the stock market. However, they are cheap with the bank index trading at about 10.2 times estimates for the next 12 months compared to an average multiple of 12.4 for the last 10 years.

Oil prices continue to rally with the WTI now above $60 gaining 5% for the week. Tropical storm Barry shut down 53% of the oil production in the Gulf of Mexico. US inventories were already on the downswing over the last four weeks as a result of the instability in the Middle East.

Investors fear that Congress will fail to raise the US borrowing limit, which could be required in September, a month earlier than expected. Also, stronger than expected consumer prices were reported for June. As a result, the 10 year US Treasury yield rose to 2.12% up from last week’s 2.04%.

In addition to the kickoff of earnings season, this week the economic calendar is very active with reports on housing starts, manufacturing, industrial production, retail sales and consumer sentiment.

“Remember to celebrate milestones as you prepare for the road ahead.”Nelson Mandela

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