The bull market was officially extended last week with the S&P 500 topping April’s prior record high. Equities, credit, and commodities all rallied on the premise that Fed rate cuts are on the way and a Trump-Xi meeting will take place next weekend. Energy (Iranian tensions) and software/services (strong Oracle earnings report) led the way in equity markets while 10yr U.S. Treasury yields dipped to 52-week lows, below 2%. The U.S. economic calendar was relatively light with Fed, housing data, and oil inventory as key markers.
- The Fed slashed its rate forecast, removed the word ‘patience’, and made clear their willingness to cut rates given the backdrop. July futures moved to a 100% probability for a rate cut and over 60% for two more before year end.
- ECB President Draghi delivered a firmly dovish communique indicating new stimulus may be forthcoming in response to the economic slowdown.
- If the Fed/ECB to deliver at least ‘some’ of what the markets are pricing, we’d expect emerging markets to benefit. EM FX/USD total return is at a new 52 week high. The technical backdrops for EM (sideways) and ACWI ex US (uptrend) have stabilized or turned higher.
- The pro-growth trade and central bank narratives last week added some slope to the yield curve which finished inverted only 4bps which first inverted on May 23 (21 trading days).
- BoA’s Global Fund Manager Survey was labeled ‘most bearish survey of investor confidence since the Global Financial Crisis’. Trade war was the primary driver of concern but monetary policy and slowing global growth were prominent drivers as well.
- Cass Transportation statistics and ATA truck tonnage are firmly validating the slowing economic picture with notable falling volumes and expenditures.
- Bespoke produced an interesting piece titled the ‘Drudge Headline Indicator’. Tallying the number of financial market headlines on what is primarily a political news site. It revealed peak tally’s at market inflection points including Feb 09, Aug 11/June 12, Jul ‘15, and Dec ‘18.
- A new Iranian stress point (drone attack), declining oil inventories (weekly EIA report), and pro-growth monetary policy all fed into gains for WTI last week. U.S. oil production has surged to over 12mbpd while imports from OPEC have fallen to lowest levels in 30 years.
- The S&P 500 is up 435% since the bull market began on March 9th 2009 while the NASDAQ soared 711%. We’re at 3,755 days (10.2yrs), still a ways behind 4,494 record from ‘87-’00.
- A notable observation is that the defensive sectors (CS, utilities, REITs) were the ones making new highs last week and also have the highest percentage of stocks trading above their 50dma.
- Growing geopolitical tensions helped push gold to a new 5-year high last week, breaking through a key technical resistance level. Gold miners have been an area of interest internally that we have discussed over the past couple of weeks.
Economic Release Highlights
- The FOMC held rates steady at 2.25%-2.50%, maintained its course on QT, and signaled an incrementally more cautious outlook on economic growth.
- June’s Housing Market Index (homebuilder sentiment) edged lower to 64 (consensus 67), a decline but still pointing to continued improvement for the housing sector.
- May housing starts (1.269M) and permits (1.294M) report came in higher than expected and included strong upward revisions to March and April releases.
- May existing home sales came in stronger than consensus at 5.340mm, which is up 2.5%M/M. Median prices are up 4.8%Y/Y to $277,700.
- AAII bullish sentiment came in at only 29% last week. Only 8% of observations have been in the 20% 's while the S&P notched a new record high - a nice wall of worry for equity markets to climb. Negative equity ETF flows also illustrates the same contrarian observation.
- The June Flash PMI slowed from May’s levels with composite, manufacturing, and services readings of 50.6, 50.1, 50.7.