Draghi’s dovish tone. European Central Bank President Mario Draghi commented in a speech at the ECB Forum on Central Banking that if the Eurozone’s economy continues to deteriorate, then the ECB would announce further stimulus measures. The ECB President’s comments echoed the dovish tilt held by global central banks amid slowing global growth as the effects of the trade conflict linger. Draghi’s speech precedes today’s FOMC meeting, in which the Fed is expected to leave interest rates unchanged, but is likely to take a more flexible stance on future monetary stimulus.
FOMC likely to leave rates unchanged today. The Federal Reserve (Fed) is likely to leave rates unchanged in their June policy announcement at 2:00 p.m. ET followed by a press conference with Fed Chair Jerome Powell. The Fed is expected to scrap the term “patience” in favor of verbiage closer to Powell’s recent assertion that the Fed will act “as appropriate” to sustain the expansion and set the stage for future policy adjustments as warranted. With a softer May jobs report, slowing inflation and ongoing trade tensions, a rate cut in the near-term is probable, but a rate cut after the G20 Summit at the end of June seems more likely.
Waiting for the G20. Trade headlines are limited since President Trump announced he will meet President Xi at the G20 Summit next week in Japan. The market seems skeptical that there will be any meaningful breakthroughs at the meeting but it’s good the two leaders are talking. The tone of comments out of Chinese media outlets and government officials has been more encouraging recently. We remain optimistic that these trade disputes can be resolved this summer, though probably not until more economic pain is inflicted on the U.S. and China economies.
Fed day blues? Although the S&P 500 Index is a chip shot away from new highs, be aware that stocks have done quite poorly on days that the Federal Open Market Committee (FOMC) has announced an interest rate decision. In fact, since Jerome Powell became the Chairman of the Fed in February 2018, the S&P has been green only once on a Fed day. That is one day higher out of 10. Whatever happens later today, be aware of this recent trend.
Can stocks really gains 20%? We maintain a fair-value target on the S&P 500 of 3,000, which would be an annual return of 19.7% in 2019. What is quite interesting about 20% returns though is the S&P 500 hasn’t had one since 2013. That comes out to five consecutive calendar years without a 20% gain. Going back to 1950, only once has the S&P 500 gone more than five years in a row without a 20% gain. Could 2019 end the streak without a 20% gain? Later today on the LPL Research blog we will take a closer look at this interesting phenomena.
- Federal Reserve Rate Decision (Jun)
- Bank of Japan Rate Decision (Jun)
- Initial Jobless Claims (Jun 15)
- Leading Index (MoM, May)
- Eurozone Consumer Confidence (Preliminary, Jun)
- Japan CPI Report (May)
- Nikkei Japan Manufacturing PMI (Preliminary, Jun)
- Markit US Manufacturing PMI (Preliminary, Jun)
- Markit US Services PMI (Preliminary, Jun)
- Existing Home Sales (MoM, May)
- Markit/BME Germany Manufactruring PMI (Preliminary, Jun)
- Markit Eurozone Manufacturing PMI (Preliminary, Jun)
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