Market Update: Wed, July 3, 2019 | LPL Financial Research

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Daily Insights

Shortened market session today, U.S. markets closed tomorrow for July 4 holiday. Trading is expected to be light when markets reopen on Friday, both a summer Friday and a bridge day from the holiday to the weekend. The U.S. jobs report for June will be released on Friday, and any large surprise may create more volatility than it usually would due to light volume.

10-year Treasury yield breaks below 2%. The 10-year Treasury yield at 1.96% this morning has fallen to its lowest level since November 2016 as markets price in slower U.S. and global growth and central bank easing ahead of Friday’s jobs report. Foreign demand, which pushes U.S. yields down, also continues to contribute. Even slightly below 2%, U.S. yields still look attractive for global investors looking to invest in high quality sovereign debt. While it may take time, we believe progress on trade and a more supportive Federal Reserve (Fed) are creating a positive backdrop for economic stabilization and modestly higher inflation, both of which may help stabilize yields and potentially push them higher, although trade remains a risk. For more discussion, see yesterday’s LPL Research blog.

Oil tumbles as manufacturing weakness overshadows OPEC+ supply cuts. WTI crude oil prices fell sharply yesterday, despite an announcement by OPEC+ (which includes Russia) that it would extend production cuts another nine months. The announcement had already been anticipated by markets, likely dulling the impact. With the rise in U.S. energy production, OPEC does not have the pricing power, or impact on supply, that it did in its heyday. Oil prices may remain restrained as long as the global growth slowdown limits demand, which would hurt exporters but support importers and, especially, consumers.

New Fed nominees tilt dovish. The Trump administration announced two new nominees to the Federal Reserve Board of Governors yesterday. The Board of Governors consists of seven members, who serve staggered 14-year terms and are all voting members of the Federal Open Market Committee (FOMC), the Fed’s policy arm. Nominees were likely more carefully vetted after the withdrawal of previous nominees Herman Cain and Stephen Moore. Christopher Walker, who is the current research director at the St. Louis Fed, is a fairly conventional candidate. Judy Shelton, who had been a critic of low rates but has swung around to supporting them since the president took office and has been an advocate of returning to the gold standard, is a more unconventional candidate but has strong credentials.

10 years and another record. The U.S. economy is officially in its longest expansion ever. At 121 months long, this current expansion just topped the previous record of 120 months set during the 1990s tech boom. It is important to note that although 10 years is a long time, looking at various other developed markets there have been many expansions lasting much longer. For example, Australia hasn’t had a recession for going on 28 years. We take a closer look at this record and interesting phenomena later today on the LPL Research blog.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. These aspirational words, penned at our nation’s founding in the Declaration of Independence, remain the basis of an extraordinary 243 years of political continuity. They have evolved in a way that has embraced common-sense capitalism, a political system of checks and balances based on a democratically elected representative government, a strong rule of law, and a nation that has been a magnet for talent and a beacon of hope for the oppressed. Not to mention a nation that has, hands down, the best barbecue in the world, although we won’t judge which region does it best. An early Happy Birthday U.S.A.!

 

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