Market Insights 7/19/2019

U.S. equities finished lower in another bumpy trading session, as re-energized near-term rate cut expectations came up against a mixed bag of earnings and economic news, as well as elevated geopolitical tensions following Iran’s seizure of a U.K. tanker.

Treasury yields and the U.S. dollar were higher following a slight increase in consumer sentiment, while crude oil prices were modestly higher and gold tumbled.

The Markets…

The Dow Jones Industrial Average fell 69 points (0.3%) to 27,154

The S&P 500 Index shed 19 points (0.6%) to 2,977

The Nasdaq Composite decreased 61 points (0.7%) to 8,147

In moderate volume, 802 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil added $0.42 to $55.76 per barrel and wholesale gasoline was up $0.01 at $1.84 per gallon

The Bloomberg gold spot price tumbled $20.79 to $1,425.31 per ounce and continued a rally, breaking out of a key technical level to reach highs not seen since 2013.

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.4% to 97.17

Markets were lower for the week, as the DJIA decreased 0.7%, while the S&P 500 Index and the Nasdaq Composite lost 1.2%

July consumer sentiment ticks higher, modestly misses estimates

The July preliminary University of Michigan Consumer Sentiment Index nudged higher to 98.4 from June’s read of 98.2, but slightly below the 98.8 Bloomberg expectation. A dip in the current conditions component of the index was offset by a rise in the index of consumer expectations. The 1-year inflation forecast dipped to 2.6% from 2.7%, but the 5-10 year inflation forecast rose to 2.6% from the previous 2.3% rate.

Next week is poised to offer another robust slate of potential market-moving data, with earnings season continuing to kick into high gear and the economic calendar chock full of reports to digest leading up to the July 31st Fed monetary policy decision. Existing and new home sales will give reads on the housing sector, Markit will deliver timely looks at manufacturing and services sector activity, durable goods orders will show demand for goods meant to last three years or more, and we will get the first look (of three) at Q2 GDP.

Treasuries were lower, as the yield on the 2-year note rose 3 basis points to 1.81%, while the yields on the 10-year note and the 30-year bond ticked 1 basis point higher to 2.05% and 2.57%, respectively.

Europe mixed, Asia higher on Fed rate cut hopes and data

European equities finished mixed, with expectations of an imminent rate cut out of the U.S. continuing to climb on the heels of commentary from Fed officials yesterday. The euro and British pound lost ground as the U.S. dollar found support despite the comments, while bond yields in the region were mostly lower. Italian political uncertainty has also increased, which pressured stocks in the nation.

Stocks in Asia finished mostly higher, with earnings season rolling on and coming in mostly better than expected, while U.S. rate cut expectations were supported by commentary from some Fed officials that suggested the Central Bank should act quickly to counter slowing economic activity and trade concerns.

Japanese equities rallied, with the yen giving back some recent gains, while the nation’s consumer price inflation rose in line with expectations for June. Stocks in mainland China and Hong Kong advanced, while markets in Australia moved higher, led by the materials and financials sectors, and South Korean securities increased on the heels of yesterday’s unexpected rate cut from the Bank of Korea.

Stocks slip slightly from record high territory amid flood of data, trade and Fed focus

U.S. stocks slightly slipped from last week’s return to unchartered territory, as earnings season heated up, trade uncertainty lingered and the markets grappled with mixed economic data and the implications for a Fed rate cut. Q2 earnings season started with a focus on the financial sector, with Dow member Goldman Sachs Group Inc highlighting the group as the Street cheered its results that included stronger-than-expected revenues from its investment banking and investing & lending units. The other major banks saw some scrutiny as net interest income came in mostly softer than expected but the results on the whole did suggest the all-important U.S. consumer remains healthy.

The transportation sector was also in focus, with United Airlines Holdings Inc continuing the string of upbeat results from the carriers, while rail companies saw mixed performance, as CSX Corporation fell after missing earnings forecasts and lowering its revenue outlook, but improved efficiency out of Union Pacific Corporation helped top profit projections to foster a rally in its shares. With 15% of the S&P 500 companies having reported thus far, about 61% have topped revenue estimates and nearly 78% have bested earnings forecasts, per data compiled by Bloomberg.

The economic front seemed to throw a wrench at elevated Fed rate cut expectations and apply some pressure to the markets, as June retail sales posted another stronger-than-expected month, July reads on regional manufacturing activity suggested a potential return to expansion, and the Fed’s Beige Book signaled that business activity across the nation continued to grow. The reports followed recent data showing inflation was a bit warm and non-farm employment growth rebounded.

However, July rate cut expectations lingered amid some late-week dovish Fed commentary and as the Index of Leading Economic Indicators declined for the first time this year and the Fed’s industrial production report came in flat.