Market Update: Tue, July 16, 2019 | LPL Financial Research

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Daily Insights

NEW Market Signals podcast. Listen to this week’s episode, in which Senior Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder discuss the upcoming second quarter S&P 500 Index earnings season and the growing potential of a Federal Reserve (Fed) rate cut in July. Subscribe to the free Market Signals podcast series on iTunesGoogle Play, Spotify, or wherever you get your podcasts!

Yields gain, curve steepens. The 10-year Treasury yield posted its biggest gain since April last week amid better-than-expected inflation data and encouraging economic commentary from Fed Chair Jerome Powell. The yield curve also steepened modestly last week as Powell’s dovish messaging about a near-term rate cut depressed short-term rates. The spread between the 2-year and 10-year yields increased the most since October, while the spread between the 3-month and 10-year yields nearly climbed out of inversion (long-term rates below short-term rates). We still expect the 10-year yield to climb higher from these levels as solid economic fundamentals prevail over global buying pressure, and higher yields should help normalize the yield curve’s shape.

Retail sales gain. Retail sales increased for a fourth straight month, the longest streak since the end of 2017, as consumer activity capped an upbeat second quarter. Retail sales (excluding automobiles and gas) climbed 0.7% month over month in June, higher than consensus estimates for a 0.3% gain. U.S. consumer strength could be especially important to second quarter gross domestic product (GDP), as business investment continued to stall and trade and inventories likely weighed on growth. We’ll get more details on the U.S. economy’s performance when second quarter GDP is released on July 26.

Easing mode and sovereign debt. Global central banks are back in easing mode as the Fed and the European Central Bank (ECB), two of the most influential banks, eye looser policy in the months ahead. This shift in monetary policy could be a significant headwind for sovereign debt rates worldwide, as we’ll explain on the LPL Research blog later today.

 

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