Inching toward record highs. U.S. stocks are poised for their sixth increase in seven trading sessions in a rally that has pushed the S&P 500 Index within 1% of record highs. This morning stocks are gaining on a delay in the start date of the next round of tariffs on China and a dovish European Central Bank (ECB) policy decision. An S&P 500 record high here would be an encouraging step for U.S. stocks, which have powered through unusually high global uncertainty this year. However, the S&P 500 is near our year-end fair value target of 3,000, so we wouldn’t be surprised to see equities take a breather here.
ECB goes bold. The European Central Bank (ECB) delivered Mario Draghi’s swan song as the head of the central bank by cutting its deposit rate by 0.1%, going further into negative territory, and restarting quantitative easing. The ECB will purchase 20 billion euros in securities per month (with no end date) to help lower interest rates and inject liquidity into the financial system. The ECB also announced a tiering system to ease the pressure of negative rates on banks, and boldly stated it will maintain accommodation until its inflation target is reached.
Is the ECB’s policy working? While the ECB’s latest moves are bold, the central bank may have passed the point of diminishing returns, where each stimulus move has less incremental impact. On the LPL Research blog today, we’ll assess what the ECB is doing across several criteria, including impacts to economic growth, inflation, borrowing costs, loan demand, and the euro.
Consumer inflation accelerates. The core Consumer Price Index (CPI), which excludes food and energy prices, grew 2.4% year over year in August, the fastest pace since July 2018. Last month’s year-over-year growth in core CPI corresponds with core Personal Consumption Expenditure (PCE) growth around 2% (or the Federal Reserve’s target), based on the historical relationship between the two gauges. Recent data shows inflationary pressures are healthy and that the U.S. has been largely immune to the disinflation and deflation concerns that other economies have faced.
Friday the 13th. Tomorrow will be the first Friday the 13th since July 2018. For most people, this is just another day, but equity investors may be in need of good luck. Fortunately, the S&P 500 does pretty well when a Friday the 13th takes place in September. We’ll take a look at stocks’ previous performances on Friday the 13th today on the LPL Research blog.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
All performance referenced is historical and is no guarantee of future results.
This research material has been prepared by LPL Financial LLC.
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