Markets Reach New Highs as Earnings Season Picks Up
US: S&P 500 Index -1.2%, Dow -0.6%, Nasdaq -1.2%
Europe: STOXX Europe 600 +0.1%, German DAX -0.5% France CAC 40 -0.4%, U.K. FTSE 100 -0.2%
Asia: Japan Nikkei -1.0%, China Shanghai Composite -0.2%, Korea KOSPI +0.4%
Rates/Commodities: 10-Year Treasury yield -7 basis points to 2.05%, WTI crude oil -7.8%, COMEX gold: +2.1%
Indices set new all-time highs on Monday, with the S&P 500 Index, Dow Jones Industrial Average, and Nasdaq Composite each reaching records as earnings season heated up. While investors set a low bar heading into second quarter earnings, we have seen an early surprise to the upside bolstered by the strength of the consumer, as noted by the June retail sales print that beat analyst expectations. Much of the macro discussion this week surrounded the upcoming Federal Reserve (Fed) meeting, where a Fed rate cut appears likely. However, there remains a degree of uncertainty surrounding the size of the rate cut. We expect the Fed to implement a 25 basis point (0.25%) “insurance” rate cut, though some market participants feel that a 50 basis point (0.5%) cut may be warranted. “The Fed committed to patience and flexibility at the beginning of this year, but global economic conditions continue to deteriorate, and the still-inverted yield curve has effectively tied policymakers’ hands.” noted LPL Research Chief Investment Strategist John Lynch.
Overseas, the broader focus was on China macro data, where second-quarter gross domestic product (GDP) growth posted a 27-year low. The decline in GDP growth comes as rhetoric from Washington signaled that additional tariffs could be imposed, though recent headlines suggest one of the main sticking points during negotiations has been the U.S. restrictions on Chinese telecommunications company Huawei. Elsewhere, tensions with Iran have escalated after the USS Boxer downed an Iranian drone, marking yet another incident in the Strait of Hormuz, though so far, market reactions to the incident have been muted.
In the week ahead, durable goods orders and the first preliminary GDP print headline the docket in the United States. The international economic calendar is filled with Purchasing Managers’ Index (PMI) data releases, with France, Germany, Japan, and the composite Eurozone all set to report numbers.
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