1. Weekly Market Update: What a week! The S&P 500 hit a record high on Thursday and the Dow Jones Industrial Average got ever so close to a closing high as well. May's losses have been erased. The US Federal Reserve did not disappoint on Tuesday, giving the markets a strong signal that an interest rate cut could happen as soon as their next meeting in July. The Fed statement revived investors’ appetite for risk assets. It is often said that “markets climb a wall of worry.” Below we examine a few of these issues which include a slowing economy, next week’s G-20 Trade Summit, Iranian tensions and money flows. At this writing, a bit before the close on Friday, major US stock indexes were up 2-3% this week, while International Stocks were up 1-2%. Emerging markets stocks were up closer to 4% due to a falling US Dollar. Bonds had slight gains and Commodities, especially Gold (+ 4%) and Oil (+8%) had a banner week. In broad strokes, Global stocks are up 17% year to date (ytd), emerging markets stocks are up 9% ytd, US Bonds are up 6% ytd, Commodities are up 5% and REITs are up 23%. We delve deeper below.
2. No Worries For Now, the Fed Has Your Back: In a week chock-full with market moving news, US Federal Reserve Chairman Powell stole the show with an implicit vow to have the back of the US economy. Powell made it clear Tuesday that the Fed stands ready to lower rates, likely at the next (July) meeting. Barring an improvement in the economic data, the futures market is betting on more than a full quarter-point rate cut for July. European Central Bank (ECB) President Mario Draghi also indicated that the ECB would embark on a more accommodative monetary policy route in concert with the Fed and other major central banks.
3. Why Didn’t the Fed Cut Now, Despite Presidential Complaining? A look at the economy according to economist Elliot Eisenberg PhD (EE) tells the tale: “When the Fed last met, economic data was looking good. Now, not so much. Manufacturing is probably in recession, inflation is weakening, the yield curve is inverted, the dollar is strong, and trade concerns are elevated. However, equities are near records, unemployment is ridiculously low, and household spending is good. Given the mix, the Fed's decision to not change rates but signal a willingness to lower rates is spot on.”
4. Next Week’s G-20 Summit Meeting is BIG! We’ll be watching closely for news updates on a meeting between president Trump and China’s premier Xi. Markets have run up on speculation that our trade warring nations will play nice in the sand box and take concrete measures toward inking a trade deal. Markets will lift higher with positive news and sink on a disappointment.
5. Sabre Rattling Between Iran & the US is the Other Big Issue for the Coming Week: Thursday Iran said it shot down a US drone in its airspace and crude oil prices surged on the news. Tensions were already at fever pitch in the region which supplies a third of the world’s oil. The United Nations Security Council confirmed what the Trump administration previously said, that the May tanker attacks were conducted by a “state actor” (read Iran).
6. Money Flows- Money markets are at a 9 Year high: As we approach the midpoint of the year (June 30th), what's remarkable is that stocks continue to outperform, even as investors pull money out of equities and put it into bonds and money markets. 2019 Year to Date Flows: $200 Billion into Bonds, $152 Billion out of Equities, $124 Billion into Money Market Funds. Money market funds (funds that invest in cash with low yields) now have about $3.2 trillion in them, according to Bank of America. That's a 9-year high. Large amounts in money markets funds can be a sign of investor pessimism or these large balances can be viewed as sideline fuel a further rally..... Money is also flowing into Bitcoin. The price of Bitcoin is rising again -- it crossed $9,000 this week for the first time since May 2018 -- so get ready for lots more talk about the cryptocurrency. The recent Bitcoin move seems to be a reaction to reports that Facebook is planning to launch its own cryptocurrency alongside major payment players Mastercard and Visa. The payment companies could provide a legitimacy that has largely been missing from the crypto world.
7. This Week’s Sign That the Apocalypse is Upon Us: Pricey Pills….The FDA has just approved the gene therapy Zolgensma (Latin for staggeringly expensive). It's a treatment for an inherited disease called spinal muscular atrophy, a condition affecting 450 newborns/year in the US. If untreated, it typically kills its victims by age two. Its manufacturer says it will cost $2.125 million. It replaces a drug costing $750,000 the first year and $375,000/year thereafter, forever! So objectively, Zolgensma is a bargain (EE).