Market Update: Wed, July 31, 2019 | LPL Financial Research

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Daily Insights

Stocks open higher on Fed day. Apple’s well-received earnings report is helping boost market sentiment this morning, but the Federal Reserve (Fed) is taking center stage. A 25 basis point (0.25%) cut is fully priced in–and is our expectation–but the bond market is suggesting a slight chance of a bigger cut. Trade discussions in Shanghai ended with no sign of progress, suggesting the Fed and, to a lesser extent earnings, are keeping stock indexes well supported. Markets are also reacting to a soft but slightly improved survey of Chinese manufacturing.

Euro-area gross domestic product (GDP) grew just 0.2% during the second quarter. This lackluster performance, while in line with estimates, along with falling inflation, lay the groundwork for more European Central Bank stimulus, possibly as soon as September. Despite higher valuations, we maintain our strong preference for U.S. equities over developed international primarily due to sluggish growth in Europe.

Here comes August. The good news is July tends to be a nice month for stocks; the bad news is August isn’t. In fact, over the past 10 years, no month has a lower average S&P 500 Index return than August. Additionally, recent pre-election years have seen some large moves lower. In August 2015, China surprised markets by devaluing the yuan, which led to the first 1,000-point Dow drop ever, while S&P downgraded the U.S. credit rating in August 2011. Could 2019 see another surprise event? We discuss this in today’s LPL Research blog.

 

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