Market Update: Tue, July 23, 2019 | LPL Financial Research

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Daily Insights

Another budget deal. Global stocks are modestly higher amid news that Congress reached a deal to suspend the U.S. debt ceiling and raise spending for the next two years. The agreement has calmed fears that investors would have to endure the uncertainty from another budget standoff later this year. Even though the United States has kicked the can down the road again, we do not believe legislators or global investors fully appreciate the long-term impact of a rising federal budget deficit. For now, the compromise is lifting stocks, but it could lead to higher rates and potential overheating.

Back at 2%. U.S. yields slid last week after a promising pop earlier in July. The 10-year Treasury yield fell 7 basis points (0.07%), its worst weekly performance since May, and closed at 2.05% on July 22. U.S. yields have been taking cues from Federal Reserve (Fed) speculation and economic data lately. Fed speakers are in a quiet period now with the July meeting kicking off next week, so yields could stay in a holding pattern until then. A European Central Bank rate decision and second quarter GDP data will be released later this week, but we don’t expect either event to be as pivotal for U.S. fixed income markets as the upcoming Fed meeting.

A case for stocks from bond valuations. U.S. stocks have powered back to record highs, and they could benefit more from a relatively expensive fixed income market. S&P 500 stocks are at their most attractive valuations relative to Treasuries in nearly three years, based on a metric we track called the equity risk premium. In today’s LPL Research blog post, we’ll dig into stock and bond valuations, and outline why this dynamic could be a tailwind for U.S. equities.

NEW Market Signals podcast. Listen to this week’s episode (live later today), in which Senior Market Strategist Ryan Detrick and Chief Investment Strategist John Lynch discuss reaching their year-end fair value S&P 500 Index target of 3,000 and whether that means it’s time to start selling. Our strategists also take a look at gross domestic product (GDP) and the still-strong consumer in the latest episode. Subscribe to the free Market Signals podcast series on iTunes, Google Play, Spotify, or wherever you get your podcasts!

 

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