The S&P 500 followed up the previous week’s strong gains with an increase of 0.5% last week. Decent economic data was encouraging but not strong enough to change expectations for much-desired interest rate cuts this year. The global MSCI ACWI climbed 0.3%. Heightened risks loom in the global market from tanker attacks and Hong Kong protests. The Bloomberg BarCap Aggregate Bond Index was unchanged as expectations for economic growth remained subdued.
Key Points for the Week
- The Federal Reserve meeting on June 19 is expected to signal a rate cut in July.
- U.S. retail sales and industrial production exceeded expectations and provided support for the U.S. economic outlook.
- U.S. economic data was closer to expectations, while China’s industrial production reached the lowest level in 17 years.
Fed Expected to Clear Path for July Rate Cut at June Meeting
The Federal Reserve isn’t expected to cut rates this week, but it will likely signal its intention to lower rates in July. Economic data released last week continued to show economic growth and inflation were slower than the Fed desires.
The U.S. CPI (Consumer Price Index) increased by 0.1% last month. The accompanying chart shows a steady decline in inflation from mid- 2018. The overall number has slid more rapidly as energy prices have dropped. Core CPI, which does not include volatile food and energy prices, has also continued to slide lower. The decline in inflation heightened investors’ expectations of a Fed rate cut.
The U.S. consumer proved more resilient than expected. U.S. retail sales increased 0.5% last month, and the previous month was revised from -0.2% to 0.3%. U.S. consumers increased spending on new vehicles, online purchases, and restaurants. The underlying fundamentals of retail sales gives economists hope for stronger second quarter GDP, as consumption makes up the largest portion of GDP.
The moderate good news extended to industrial production. Manufacturing, the most significant part of the data, increased for the first time this year. China also released its industrial production data. It grew 5%, which was the lowest growth rate in the last 17 years. The ongoing trade dispute continues to hurt both countries.
Despite the decent retail sales number, investors still expect at least two rate cuts this year. We will be watching to see what signals Fed Chair Jerome Powell gives regarding a July cut and whether he affirms or cautions the market not to expect additional help from the Fed.
Farming is a tough business, and late storms this year in conjunction with China moving significant purchases to other countries have made it even tougher. One farmer in Illinois recently threw a party to help some of his neighbors through this rough period. Hopefully, it helped and good news will find its way to farmers.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds