Weekly Market Commentary – June 17, 2019

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.

U.S. CPI  

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.

Fun Story

Farmer Who Can’t Plant Throws Party

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.

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