Week 25 Sitrep

The U.S. stock market took a break from the strong recovery begun in the first week of June. While the markets managed to post a small gain last week, the news from Broadcom on Thursday evening brought questions about the strength of the recovery. Broadcom announced weaker guidance for the second half of the year and the markets reacted with a pullback on Friday. The semiconductor stocks took the largest hit, but the broader technology sector also traded lower on the news.1

 

Source: J.P. Morgan Asset Management, 6/17/2019

 

Source: J.P. Morgan Asset Management; 6/17/2019

 

Although the technology sector fell slightly last week, it remains the leading sector for 2019. There are a few technology companies reporting earnings this week, including Adobe and Oracle. Many analysts continue to watch the technology sector for signs of weakness that would indicate the economy slowing. According to Brian Wesbury, Chief Economist for First Trust Advisors, there are several economic indicators pointing to slight revisions upward for the 2nd quarter. Wesbury cites retail sales (up 0.5% in May) and the recent revisions to GDP for 1Q19 (up 3.3%) as evidence for a U.S. economy that is still growing.2 Bespoke Investment Group reported on Friday that, despite the threat of tariffs historically leading to higher inflation, the current inflation levels remain lower than Fed targets.3

 

Source: Bespoke Investment Group; 6/14/2019

If you watch or listen to the financial media, it is likely you have heard the commentary on a potential economic slowdown or inevitable recession. The most common evidence used to support this claim is the current inverted yield curve. If you were to view the yields of all maturities of U.S. Treasury securities on a graph, the current yield of shorter maturities is higher than the yield of longer maturities. Currently, the yield on a 3-month U.S. Treasury Bill is 2.197% while the yield on a 10-year U.S. Treasury Note is 2.091%.4 Many U.S. economic recessions have been preceded by a time when the U.S. Treasury yield curve is inverted.

 

Source: Bespoke Investment Group, 6/14/19

What’s next?

There are many important events in the next four weeks that we are monitoring for their impact on U.S. markets. In chronological order they are:

FOMC Meeting (June 18-19)

The Federal Reserve Board meets this week and many analysts are expecting the Fed Chair to provide an update on the outlook for the U.S. economy. The futures market for Fed Funds is currently pricing an 80% probability that the Fed will cut interest rates at the July meeting.5 Comments from the June meeting may provide clues as to their intentions.

G-20 Summit Osaka (June 28-30)

The next scheduled meeting for G-20 leaders is expected to provide a platform for President Trump and Chinese President Xi to discuss the next steps for a U.S.-China trade agreement.

U.S. Supreme Court 2019 Session (usually end of June)

The high court will conclude its 2019 session with some controversial cases, including the issue of adding a citizenship question to the 2020 census as well as a decision on recent challenges to partisan gerrymandering. Both decisions could have political implications going into election season.

2nd quarter earnings season (usually starts the second week of July)

According to FactSet Insight, earnings for the S&P 500 are expected to decline by 2.3% in the 2nd quarter.6 That is largely a reflection of U.S. companies with higher international revenue exposure expecting a decline of 9.3% in earnings for the 2nd quarter due to concerns over trade tensions and slower economic growth.

 

Source: FactSet Insight, June 7, 2019

As always, we will continue to monitor the markets and the economy as we focus on risk-adjusted returns in our clients’ portfolios. If you’d like to schedule a time to discuss your portfolio or the markets in more detail, please feel free to call our office at (281)616-5935.

We are continually grateful for the confidence you have placed in our team. We look forward to serving your family in the years to come!

Engrave Wealth Partners Investment Committee
Bill Day, CFP®, CIMA
Taylor Parker, CFP®
Greg Parker

1. J.P. Morgan Asset Management, June 17, 2019
2. First Trust Advisors, Monday Morning Outlook, June 17, 2019
3. Bespoke Investment Group, The Bespoke Report, June 14, 2019
4. J.P. Morgan Asset Management, June 17, 2019
5. Bespoke Investment Group, The Bespoke Report, June 14, 2019
6. FactSet Insight, June 7, 2019

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