Stocks rally. The S&P 500 Index gained 4.4% last week, its best week since November, on increasing hopes for Federal Reserve (Fed) rate cuts. Friday’s weaker-than-expected May jobs report sealed the deal for financial markets, as fed fund futures are now pricing in a 99% chance of a rate cut by the end of the year. A cut does look increasingly likely, but we believe that fed fund futures markets remain too aggressive given on-going fiscal stimulus, an economy that has been growing near 3%, and a near 50-year low in the unemployment rate. However, policy uncertainty remains the biggest risk to the economic outlook, and the bond market has increasingly signaled that monetary policy may be too tight for a drawn out trade dispute.
Mexico deal. U.S. stocks continue to climb in early trading after the U.S. announced a deal with Mexico over the weekend to address immigration and border demands. Because of the agreement, the U.S. decided not to implement 5% tariffs on a swath of Mexican imports, removing a bit of trade uncertainty that has plagued global markets recently.
Cutting earnings estimates. While it’s good news that the U.S. and Mexico reached an agreement, a deal with China is unlikely until more economic pain is incurred by both China and the United States. Factoring in tariffs, ongoing trade uncertainty, and the related drag on business confidence and economic growth, we have reduced our 2019 S&P 500 earnings forecast from $172.50 per share to $170. Importantly, our forecast remains above consensus and we maintain our forecast for year-end fair value on the S&P 500 in the range of 3,000. Read more later today in our latest Weekly Market Commentary and on today’s LPL Research blog.
A record long expansion. The economic expansion just turned 10 years old, tied for the longest on record, according to the National Bureau of Economic Research. It’s only fitting with this milestone that economic skepticism is peaking once again. While policy uncertainty can be unnerving, the U.S. economy has navigated several global crises in this cycle with sound fundamentals and a measured Fed. We think both supportive factors are still in place, as we’ll explain in this week’s Weekly Economic Commentary.
The week ahead. The week ahead includes several key economic announcements, with the U.S. docket headlined by the National Federation of Independent Business Small Business Optimism Index, along with Consumer Price Index (CPI) and Producer Price Index (PPI). Overseas, several important trade barometers are slated for release from China, which could give some clues to the outlook for future trade negotiations. Track these and other important events on our Weekly Global Economic & Policy Calendar.
- JOLTS Job Openings Report (Apr); LP: 7488
- UK Industrial Production (Apr)
- China Trade Balance (May)
- China Exports (May)
- China Imports (May)
- NFIB Small Business Optimism Index (May); LP: 103.5
- PPI Report (May); Cons: 0.1%, LP: 0.2%
- Japan PPI Report (May)
- China CPI Report (May)
- China PPI Report (May)
- CPI Report (May); Cons: 0.1%, LP: 0.3%
- Import Price Index (May); Cons: -0.3%, LP: 0.2%
- Export Price Index (May); LP: 0.2%
- Initial Jobless Claims (Jun. 8); LP: 215K
- Germany CPI Report (May)
- Eurozone Industrial Production (Apr)
- China Industrial Production (May)
- China Surveyed Jobless Rate (May)
- Retail Sales (May); Cons: 0.6%, LP: -0.2%
- Industrial Production (May); Cons: 0.2%, LP: -0.5%
- University of Michigan Sentiment Index (Preliminary, Jun); LP: 100
- Japan Industrial Production (Apr)
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