Highlights for the week:

  • • The S&P 500 eclipsed all-time highs on optimism of an easy Fed
  • • The Fed kept rates steady at the June meeting but signaled the likelihood of a cut in July
  • • All eyes will focus on trade this week, as Presidents Trump and Xi are scheduled to meet at the G-20

The S&P 500 continued its strong June performance, up 2.2% for the week and 7.3% month-to-date and reached a new all-time high on Thursday last week. The release and subsequent press conference from Fed Chairman Jerome Powell’s meeting last Wednesday signaled a willingness to cut rates and ease policy in an effort to extend the cycle. Energy (5.2%), Tech (3.3%) and Health Care (3.1%) led the markets higher, while Consumer Staples (0.2%), Materials (0.3%), and Financials (0.4%) lagged. All sectors were positive for the week.

The Fed acknowledged the slower pace of growth in the minutes stating, “Economic growth is rising at a moderate rate.” At the previous meeting, the Fed described growth as “solid.” Household consumption remains solid, but business investment has softened. Much of the slowing is due to the uncertainty about trade. However, markets cheered the statement that “We will act as needed including promptly if that’s appropriate and use our tools to sustain the expansion.”

In addition to the outlook on slower growth, the Fed’s outlook for inflation has also come under pressure. The Fed lowered its projections for its preferred inflation measure, core PCE, to 1.8 percent from 2 percent. Most of the Fed governors do not believe inflation will not reach its target rate of 2 percent without cutting rates. The dovish rhetoric and updates to longer-term forecasts of growth and inflation increase the odds of a cut coming soon. In fact, according to Fed fund’s futures, the market is pricing in a 100% chance of a rate cut at the July meeting. The question for the market is now to what degree, 25 or 50 basis points.

While the markets reached new highs, it is becoming more evident that the case for material upside from these levels may be difficult to attain. A supportive Fed,

optimism on a trade deal, and relatively light positioning and sentiment data support a case for incremental upside, but fundamental economic data is slowing rapidly. The most recent reading on JP Morgan Global PMI, a leading survey-based economic indicator, at 49.8 is one of the more apparent signals of a global slowdown. A reading below 50 indicates future contraction. We will continue to monitor PMI data, and upcoming jobs numbers to provide cues on the direction of the economy and ultimately markets.

Source: Bloomberg

Now that the Fed meeting is behind us, markets will laser-focus on trade over the upcoming days ahead. The markets rallied on news that Presidents Trump and Xi will meet in Japan at the G-20 meeting which kicks off on Friday. While it is possible that a surprise deal gets announced during or immediately after the meeting, we think the more likely outcome is that the U.S. agrees to forego the 25% tariffs on the additional $300 billion of Chinese imports, and the two sides agree to restart formal talks. We ultimately still believe a deal gets done, but the timing of when a deal happens is anyone’s best guess. We would anticipate markets to rally on any positive news surrounding trade, but the risk is much more significant to the downside on a negative surprise.

Week ahead:

If last week was all about the Fed, this week is all about trade. The highlight will be the G-20 meeting in Japan which is scheduled for Friday and Saturday. Markets will eagerly anticipate some news coming over the weekend, where our base case is for the U.S. to hold off on additional tariffs for some period of time for additional talks. There are some high-profile earnings reports this week, as Lennar (LEN), Micron (MU), Fed-Ex (FDX), Nike (NKE), Constellation Brands (STZ) and General Mills (GIS) kick off earnings season. On the economic docket, housing prices and home sales, consumer confidence, durable good, and inventory data and personal income and consumption data will be closely watched releases this week.

Sources:

Listed market indices are provided for information purposes only and are not intended in any way to be representative of Cornerstone Wealth Group’s client accounts or performance. The holdings and performance of Cornerstone Wealth Group’s client accounts may differ substantially from the listed indices. Market indices are unmanaged and are not available for direct investment.

This material provided by Cornerstone Wealth Group is for informational purposes only. It is not intended to serve as personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment. Any securities mentioned herein are not to be taken as advice or recommendation to buy or sell a specific security. The information provided may not be applicable to your account managed by Cornerstone Wealth Group. Please contact Cornerstone Wealth Group for specific information regarding the holdings and trading activity of your account. Opinions expressed in this commentary do not represent a personalized recommendation of a particular investment strategy to you. Additionally, you should review and consider any recent market news. All expressions of opinion are subject to change without notice in reaction to shifting market or other conditions. Data provided is believed to be accurate, but its accuracy, completeness or reliability cannot be guaranteed.

Investment advisory services offered through Cornerstone Wealth Group, LLC dba Cornerstone Wealth, an SEC registered investment adviser. Custody and other brokerage services provided to clients of Cornerstone Wealth Group, LLC dba

Cornerstone Wealth services are offered by Fidelity Brokerage Services LLC, Member NYSE/SIPC and Charles Schwab & Co., Inc., Member FINRA/SIPC.

Securities offered through Mutual Securities, Inc., Member FINRA/SIPC. Supervisory office located at 16810 Kenton Drive, Suite 200, Huntersville, NC 28078. Cornerstone Wealth Group, LLC dba Cornerstone Wealth is not affiliated with Mutual Securities, Inc.