Week in Review

Week in Review: July 15, 2019

Powell’s Pirouette

U.S. equities closed the week higher, as the three major domestic indexes reached multiple milestones amid dovish comments from the Federal Reserve (the Fed) which bolstered investor expectations for an interest rate cut at the end of the month. As a result, the S&P 500 advanced 0.8% during the week, closing above the 3,000 mark for the first time. Meanwhile, the NASDAQ Composite advanced 1.0%, also achieving a record level. Last week, Fed Chairman Powell testified in front of congressional leaders that “crosscurrents” from weaker overseas economic activity and rising trade tensions are dampening the outlook of the U.S. economy. In recent weeks, investors have grown more confident that the Fed is likely to cut interest rates for the first time in a decade, sending equity prices and bond yields higher. 

In addition, Chairman Powell further added that despite growing uncertainties, the baseline outlook for the U.S. economy remains favorable for continued growth. This month, the ongoing economic expansion became the longest in U.S. history, supported by historically low unemployment and a record 105 straight months of job gains. The U.S. Labor Department reported on Thursday that initial claims for unemployment benefits dropped 13,000 to a seasonally adjusted 209,000, the lowest level since April. However, inflation has been subdued throughout the 10-year expansion, even as the unemployment rate has dropped to a multi-decade low 3.7%. And while U.S. underlying consumer prices rose in June, Chairman Powell cited persistently low inflation below the 2% target as a justification for potentially lowering short-term interest rates. The Consumer Price Index (CPI) — a widely followed measure of consumer inflation — showed core inflation rising 2.1% year-on-year in June (see Figure 1). On a monthly basis, the Labor Department stated its core U.S. consumer price index, excluding food and energy, rose 0.3% in June, the largest increase since January 2018. The core CPI index was boosted by strong increases in the prices for apparel, used cars and trucks, as well as household furnishings.

Across the pond, international equities fell during the week despite fresh signs that the Fed and the European Central Bank are considering further stimulus measures. Data published Wednesday revealed that the U.K. economy grew by more than expected in May, aided by a slight recovery in car production after Brexit-related shutdowns. Overall output expanded by 0.3%, after contracting by 0.4% in April, exceeding expectations of a modest 0.1% rise. However, Chinese economic data showed that trade frictions with the U.S. have brought some pressure on China’s trade. China’s dollar-denominated exports fell 1.3% in June from a year ago, while imports fell 7.3% during the same period. While President Trump and Chinese President Xi reached a temporary tariff truce last month at the G20 Summit, President Trump stated on Thursday that China was reneging to promises it made on buying agriculture products from American farmers.

On the fixed income front, the yield on the 10-year U.S. Treasury note hit a one-month high on Friday, on pace to post its biggest weekly gain since April when domestic data showed higher-than-expected inflation during June. Nevertheless, financial markets still expect one rate cut at the end of July, and a cumulative 64 basis points in cuts by the end of 2019. In turn, the U.S. dollar also weakened for a third straight session on Friday. Despite the likelihood of a Fed rate cut, the dovish stance of most other global central banks is offsetting the impact of potential Fed action on the U.S. dollar crosses. The U.S. dollar index started rallying midway last year and has been on an upward trend since. A strong U.S. dollar is usually a headwind for companies with substantial sales overseas as it makes exports more expensive.

This week also marks the start of the 2019 Q2 earnings season. The season will be challenged by tough comparisons from last year, when strong earnings were amplified by U.S. tax cuts. However, the challenging economic conditions and growing geopolitical concerns have led businesses and analysts to adjust their earnings outlooks lower. While earnings estimates have deteriorated, this also sets up the possibility that corporate announcements may surprise on the upside, and provide further fuel for the stock market. 

Figure 1: U.S. CPI Inflation, 12-month percent


Source: Thomson Reuters (7/15/2019)

Market Returns (USD)





Global Equities

MSCI All Country World

0.2% 1.4% 17.9% 5.3%

S&P 500

0.8% 2.5% 21.5% 9.9%

Dow Jones Industrial Average

1.5% 2.8% 18.7% 12.3%


1.0% 3.0% 25.0% 6.5%

Russell 2000

-0.3% 0.3% 17.3% -5.8%


-0.5% 0.0% 14.0% 0.7%

MSCI Emerging Markets

-0.8% -0.1% 10.5% 0.7%

Fixed Income

ICE BofAML Municipals 1-10 Year A-AAA 

0.3% 0.3% 4.3% 5.6%

Bloomberg Barclays Intermediate Government/Credit

0.0% -0.3% 4.7% 6.5%

Bloomberg Barclays High Yield Bond

-0.1% 0.2% 10.2% 7.2%

JPMorgan GBI Emerging Markets Global Diversified

0.4% 0.7% 9.5% 8.7%

Market Levels


Week Ago

Year End

Year Ago

S&P 500

3013.77 2990.41 2506.85 2798.29

Dow Jones Industrial Average

27332.03 26922.12 23327.46 24924.89

10-Year U.S. Treasury Yield (Constant Maturity)

2.12% 2.04% 2.69% 2.85%

Gold ($/oz)

$1,415.75 $1,399.45 $1,282.49 $1,247.39

Crude Oil ($/barrel)

$60.21 $57.51 $47.60 $63.74

U.S. Dollar / Euro ($/)

1.13 1.12 1.15 1.17

U.S Dollar / British Pound ($/£)

1.26 1.25 1.28 1.32

Japanese Yen / U.S. Dollar (¥/$)

107.91 108.47 109.69 112.55
What's Important

U.S. equities surged as weakening global economy and rising trade tensions have strengthened the case for a rate cut

U.S. core inflation posted biggest gain in nearly one and a half years

U.S. Treasury yields rose as demand for safe-haven assets waned