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Weekly Update – August 02, 2019

  • Stocks around the globe retreated after policy surprises rattled investors. The Federal Reserve cut interest rates as expected but conveyed a surprisingly hawkish tone at the presser, dashing hopes for an easing cycle. United States China trade talks concluded with no breakthroughs but a promise to resume talks, which seemed to back-burner trade concerns. The next day, however, President Trump announced 10% tariffs on the final $300 billion tranche of Chinese imports.
  • The surprise tariffs reignited fears of global recession, driving stock prices and bond yields down everywhere. The major U.S. indexes slumped: the S&P 500 and Nasdaq closed at 2932.04 and 8004.07, respectively; the Dow Jones Industrial Average closed at 26485.14. The 10-year U.S. Treasury yield dropped to 1.851%, plumbing lows not seen since late 2016. The yield on Germany’s longest-term bond, the 29-year Bond, went negative for the first time, falling to -0.004% as investors sought “safe-haven” assets.
  • Oil prices fell on concerns about oversupply and slowing demand. Gold prices surged on escalating economic uncertainty. The U.S. dollar fell against a basket of major currencies.
  • With 59% of S&P 500 companies reporting second-quarter results, 75% have exceeded earnings per share (EPS) expectations, while 61% have beaten revenue expectations. As of July 31, 2019, Refinitiv estimated the S&P 500 index’s second-quarter earnings growth rate at 1.3% and its 12-month forward P/E ratio at 17.4. Booz Allen Hamilton, Procter & Gamble and Tower Semiconductor impressed this week, whereas Beyond Meat, Capital One and Cooper Tire disappointed.
  • Nonfarm payrolls rose by 164,000 in July, just shy of the 165,000 monthly average year-to-date; the YTD average for 2018 was 223,000. The unemployment rate held steady at 3.7%. Average hourly wages rose 3.2% versus a year ago, up slightly from June’s pace.
  • July ISM manufacturing came in at 51.2 versus consensus 52.0 and June’s 51.7, marking the fourth month of decline and the lowest headline level in three years. Final July Markit manufacturing PMI logged 50.4, above 50.0 consensus but lower than June’s 50.6 and the lowest headline since September 2009. Construction spending for June declined 1.3% from May, down 2.1% year-over-year.

CPWM Weekly Market Monitor (2019.08.02)

 

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