Weekly Market Drivers | LPL Financial Research

Stocks Reach New Milestones as the Fed Stays Accommodative

US: S&P 500 Index +0.8%, Dow +1.5%, Nasdaq +1.0%
Europe: STOXX Europe 600 -0.8%, German DAX -2.0% France CAC 40 -0.4%, U.K. FTSE 100 -0.6%
Asia: Japan Nikkei -0.3%, China Shanghai Composite -2.7%, Korea KOSPI -1.1%
Rates/Commodities: 10-Year Treasury yield +8 basis points to 2.12%, WTI crude oil +5.5%, COMEX gold: +0.4%

Overall, U.S. stocks had an uneventful week in terms of volatility, with major indexes gaining less than one percent. The Dow Jones Industrial Average did close above 27,000 for the first time, while the S&P 500 Index and Nasdaq Composite also reached fresh highs. It took the Dow about 18 months to climb from 26,000 to 27,000 (a less than 4% move), showing how rocky the past two years have been for large-cap, diversified U.S. companies.

The main economic story of the week was Federal Reserve (Fed) Chair Jerome Powell’s testimony in front of Congress, in which he noted uncertainty from crosscurrents and muted inflation pressures have continued to weigh on the domestic outlook.  . His comments further bolstered expectations of a July rate cut, despite data showing consumer price inflation (CPI) data increased moderately in June. “Inflation is still low, and the yield curve is indicating that monetary policy may be too tight for the uncertain trade environment,” said LPL Research Chief Investment Strategist John Lynch. “Economic fundamentals are still sound, so we view any Fed cuts at this point as a course correction, not a reaction to recessionary signals.”

In the week ahead, we will be looking for clues for the course of future monetary policy in the Fed’s Beige Book, as well as monitoring the health of the U.S. economy with the release of the Conference Board’s Leading Economic Index. Overseas, the China gross domestic product (GDP) report headlines the economic docket.

 

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