Market Recap - Stocks lose ground, U.S. Treasury Market Flashes Recession Signal, But Consumer Remains Resilient

The Stock Market Finished Lower This Week In Another Wild Ride On Wall Street. The S&P 500 (-1.0%), Dow Jones Industrial Average (-1.5%), And Russell 2000 (-1.3%) Lost At Least 1.0%, While The Nasdaq Composite (-0.8%) Fared Slightly Better.

Eight of the 11 S&P 500 sectors finished lower. The energy sector (-3.9%) led the retreat, followed by the financials sector (-2.2%) amid another steep drop in U.S. Treasury yields. The lower yields, however, benefited the utilities (+0.5%) and real estate (+0.3%) sectors, while the consumer staples sector (+1.6%) showed some strength. The Philadelphia Semiconductor Index (+1.0%) also finished higher amid some hope that the U.S. and China could still work on a trade deal.

The week began with investors continuing to seek safety in U.S. Treasuries and gold. Growth concerns, however, were temporarily set aside after the White House announced that it will delay the 10% tariff rate for some items imported from China, including cell phones and laptops, until Dec. 15. The news sparked a relief rally that quickly evaporated following another round of disappointing data from China and Germany.

The rush back to safety briefly sent the yield on the 10-yr note below the yield on the 2-yr note for the first time since 2007, which is an inversion that has preceded each recession since 1980. The average length of time between the first inversion and the start of each recession since 1980 has averaged 18 months, with the range being as little as ten months to as many as two years.

The 2-yr yield fell 16 basis points to 1.47%, and the 10-yr yield fell 19 basis points to 1.54%. The U.S. Dollar Index increased 0.7% to 98.18. WTI crude increased 0.5% to $54.89/bbl.

Understandably, the 2s10s spread inversion spooked some investors, but the resiliency of the U.S. consumer, whose spending accounts for approximately 70% of GDP, helped ease some nerves. This sentiment flowed from a 0.7% m/m increase in retail sales for July (Briefing.com consensus 0.3%) and solid earnings results and higher guidance from Walmart (WMT).

On a related note, President Trump said he delayed some tariffs (most will still go into effect on Sept. 1) to ensure consumer spending isn't hurt during the Christmas shopping season.

Separately, many institutions around the world, including the ECB, China, and Germany, were reportedly taking steps to stimulate growth if need be. This support helped foster some risk sentiment late in the week.

Market Recap - Volatility Spikes And Rattles Wall Street, But Market Ends Week Modestly Lower

It Was A Wild Week On Wall Street, Which Was Shaken Up By Concerns Over Growth, Trade, Yields, And Even Currencies. Despite All The Negative-Minded Speculation, The S&P 500 Only Finished The Week Down 0.5%.

The Dow Jones Industrial Average lost 0.8%, the Nasdaq Composite lost 0.6%, and the Russell 2000 lost 1.3%.

Out of the 11 S&P 500 sectors, six finished lower while five finished higher. The energy (-2.2%) and financials (-1.7%) sectors underperformed, while the defensive-oriented utilities (+1.0%) and real estate (+1.8%) sectors outperformed.

Two events were widely attributed to the early sell-off that extended last week's pullback: (1) China allowed the yuan to weaken beyond 7 per dollar in response to President Trump's tariff threat and (2) U.S. Treasury yields took a sharp downturn that further flattened the yield curve.

The former happened on Monday, which caused each of the major averages to lose more than 3% in the worst one-day performance of 2019. Adding to the sour mood was the U.S. labeling China a currency manipulator for the first time since 1994 and China halting U.S. agricultural purchases.

Stocks recouped some losses once China signaled it will keep the yuan stable, but the market returned to those lows on Wednesday after yields took a startling leg lower. Once yields stabilized, though, the stock market was able to finish the week well off those lows despite the lingering trade and growth concerns.

Low rates were nothing new for the market, which had seen yields steadily decline since November. In fact, low yields, and the expectation that they will remain low due to global central banks signaling for easier monetary policy, has been cited as a catalyst for the equity rally this year. Three more central banks -- from New Zealand, India, and Thailand -- cut rates sharper than expected this week.

Rather, the narrowing spread between the 2-yr and 10-yr yields made some investors nervous. The 2-10 spread, which is widely viewed as a possible indicator for a recession, narrowed to its lowest differential since 2007. By week's end, the 2-yr yield finished down eight basis points to 1.63%, and the 10-yr yield finished down 13 basis points to 1.73%. The U.S. Dollar Index fell 0.5% to 97.54. WTI crude lost 2.0% to $54.61/bbl.

Separately, gold prices rose 3.5%, or $51.00, to $1508.50/oz this week, boosted by lower yields, the weaker dollar, and economic uncertainty. For the year, gold is now up 14.9%, just below the S&P 500's 16.4% return.

Market Recap - Stock Market Falls, Fed Cuts Rates, Trump Threatens China With More Tariffs

The Stock Market Sold Off This Week With A Bulk Of Its Losses Coming After President Trump Threatened A 10% Tariff Rate On $300 Billion Of Chinese Goods, Effective September 1.

The S&P 500 (-3.1%) and the Nasdaq Composite (-3.9%) pulled back considerably from last week's record highs, while the Dow Jones Industrial Average (-2.6%) and Russell 2000 (-2.9%) also had poor performances. 

Heading into the week, investors already knew it was going to be eventful. Earnings were in full force, highlighted by upbeat results and guidance from Apple (AAPL); the Fed held its policy meeting that concluded with a 25-basis points rate cut and an announcement to end its balance sheet reduction efforts two months ahead of schedule; U.S.-China trade talks wrapped up in Shanghai, albeit with little progress; and the July employment report showed another decent gain in nonfarm payrolls. 

Still, none of these outcomes appeared to stir much conviction among investors. Instead, stocks fell noticeably after Fed Chair Powell described the July rate cut as a "mid-cycle adjustment," although much of that decline was erased the following day as investors regrouped to the idea of low rates and a suggestion from Mr. Powell that monetary policy could still accommodate another rate cut.

That was the case until President Trump's tariff threat on Thursday reignited trade and growth concerns that send stocks and U.S. Treasury yields sharply lower and undid the gains in oil ($55.74, -$0.45, -0.8%).

Nine of the 11 S&P 500 sectors finished lower with seven sectors losing at least 3.0%. The consumer discretionary (-4.6%) and information technology (-4.4%) sectors fell over 4.0%, while the utilities (+0.3%) and real estate (+2.1%) sectors benefited from the lower interest rates. 

The trade-sensitive semiconductor and transportation stocks also succumbed to heavy selling pressure. The Dow Jones Transportation Average dropped 3.7%, and the Philadelphia Semiconductor dropped 6.6%. Disappointing guidance from Advanced Micro Devices (AMD) also weighed on the semiconductor group. 

Aside from the obvious drop in equities, the flattening of the yield curve was also a discouraging development for investors and lenders that depend on healthy net interest margins. The spread between the 2-yr yield and 10-yr yield narrowed to 15 bps from 21 bps last week. The 2-yr yield fell 16 basis points to 1.71%, and the 10-yr yield fell 22 basis points to 1.86%. The U.S. Dollar Index increased 0.1% to 98.10, briefly hitting a two-year high before pulling back following the tariff news. 

Market Recap - Stock Market Sets New Record Highs, as Earnings Remain Positive

The Stock Market Finished The Week Higher With The S&P 500 (+1.7%) And Nasdaq Composite (+2.3%) Setting New Record Highs In The Process. 

Upbeat earnings results throughout the week, and an encouraging first look into second-quarter GDP, helped the stock market continue its upward trend. The Russell 2000 advanced 2.0%. The Dow Jones Industrial Average increased just 0.1%, undercut by an 8.6% weekly decline in shares of Boeing (BA) amid ongoing company-specific issues.

More than 40% of S&P 500 companies have now released their earnings reports, according to FactSet, and most of the results this week continued to come in better than expected. Alphabet (GOOG) exceeded expectations, and shares climbed more than 10% the following day. Investors were less pleased, however, with tepid revenue guidance from Facebook (FB) and a profit miss from Amazon (AMZN).

The S&P 500 communication services sector (+4.6%), which is home to Alphabet, was this week's outright leader. The financials (+2.7%) and information technology (+2.4%) sectors followed suit, while the energy (-0.6%) and utilities (-0.6%) sectors finished lower.

The Philadelphia Semiconductor Index remained on a tear, rising 4.6% this week on positive commentary out of Goldman Sachs, upbeat earnings results from Texas Instruments (TXN), and news that the U.S. will head to China next week to continue trade talks. For the year, the PHLX is now up 38.0%.

On the data front, the advance estimate for second-quarter GDP increased at a seasonally adjusted annual rate of 2.1% (Briefing.com consensus 1.8%). Although the U.S. economy did slow down from the 3.1% growth recorded in the first quarter, strong consumer spending helped the economy grow better than expected.

The upbeat data is likely to feed into Boston Fed President Rosengren's (FOMC voter) view that the Fed should keep rates unchanged at its policy meeting next week. Mr. Rosengren's stance is a minority position in the market's mind, though, especially at a time when central banks around the world, including the European Central Bank, have called for easier monetary policy.

U.S. Treasuries ended the week little changed, leaving yields at relatively low levels that continued to favor risk assets. The 2-yr yield increased three basis points to 1.87%, and the 10-yr yield remained unchanged at 2.08%. The U.S. Dollar Index advanced 0.9% to 98.01. WTI crude advanced 1.0% to $56.19/bbl.

Separately, the Department of Justice announced a broad antitrust review into the "market-leading online platforms" this week. Investors didn't appear too concerned about the regulatory overhang, though, amid the positive mood in the market.

Market Recap - Wall Street Pulls Back From Record Highs As Earnings Season Kicks Off

The Major Averages -- S&P 500 (-1.2%), Dow Jones Industrial Average (-0.7%), And Nasdaq Composite (-1.2%) -- Began The Week By Eking Out Record Closes, But The Stock Market Ultimately Looked Uninspired During The First Week Of The Second Quarter Earnings-Reporting Season.

The Russell 2000 lost 1.4%. Earnings reports came in mostly better than expected, including those from the big banks and Microsoft (MFST). Many of these stocks reacted positively to the good news, but the lack of positive price action in the market suggested that much of the goods news may have already been priced in. 

Shares of those companies that didn't at least meet expectations, however, like Netflix (NFLX) and CSX Corp. (CSX) were punished. Disappointing guidance from CSX rattled the Dow Jones Transportation Average (-0.3%), which fell 3.6% on Wednesday before earnings reports from Union Pacific (UNP) and KC Southern (KSU) welcomed renewed buying interest.

The S&P 500 communication services sector (-3.1%) was this week's laggard, as shares of Netflix fell 13% in the two sessions following its earnings report. The real estate (-2.3%) and energy (-2.7%) sectors were added weights on the market. Energy stocks were pressured by oil prices ($55.66/bbl, -$4.55) losing nearly 8% this week, although prices stabilized on Friday after Iran seized a British oil tanker. 

The consumer staples (+0.2%) and materials (+0.2%) sectors were the lone sectors that finished higher. The Philadelphia Semiconductor Index was a notable standout, rising 1.3% following positive earnings results and hopeful commentary from Taiwan Semi (TSM).

Another round of Fedspeak this week affirmed the market's expectations for at least a 25-basis points rate cut at the July 30-31 FOMC meeting. According to a report from The Wall Street Journal on Friday, the Fed is signaling that it will go ahead with the quarter-point cut.

That shouldn't be too surprising considering that economic data didn't convey any strong indications for a sharp rate cut. Retail sales for June increased 0.4% (Briefing.com consensus 0.2%), and the Philadelphia Fed Index for July climbed to 21.8 (Briefing.com consensus 5.0) from 0.3 in June.

U.S. Treasuries edged higher, pushing yields lower across the curve. The 2-yr yield declined two basis points to 1.82%, and the 10-yr yield declined three basis points to 2.05%. The U.S. Dollar Index advanced 0.3% to 97.15.

Market Recap - Rate Cut Hopes Fuel Another Week of Gains

The Stock Market Recorded Its Second Consecutive Week Of Gains, With The Dow (+1.5% For The Week), Nasdaq (+1.0% For The Week), And S&P 500 (+0.8% For The Week) Reaching Fresh Record Highs.

Equity indices saw limited movement on Monday and Tuesday, as investors awaited Wednesday's semiannual testimony on monetary policy. The market welcomed the testimony, considering comments made by Fed Chairman Jay Powell were seen as a sure sign that the FOMC will reduce the fed funds target rate range by at least 25 basis points on July 31.

Chairman Powell said that baseline expectations for solid economic growth remain in place, but he noted that the composition of growth in Q1 was poor due to net exports and inventories driving the overall increase. The Fed chairman also said that growth in consumer spending was weak in Q1 while business investment slowed notably. The dovish remarks led to another increase in expectations for a 50-basis point rate cut. At the end of the week, the fed funds futures market saw a 21.4% implied likelihood of a 50-basis point rate cut on July 31, up from 5.4% one week ago.

Fed officials have been pointing to weakening inflation metrics to justify the growing hopes for a rate cut, but economic data released this week showed a larger than expected increase in Core CPI (actual 0.3%; Briefing.com consensus 0.2%) and Core PPI (actual 0.3%; Briefing.com consensus 0.3%) in June. On a yr/yr basis, core CPI is up 2.1% while core PPI is up 2.3%. Meanwhile, the Fed's preferred inflation gauge, core PCE, increased 1.7% yr/yr in Q1, which is a faster rate than what was seen when the central bank began raising rates at the end of 2015 (1.2%).

The energy sector was the top performer of the week, climbing 2.2% since last Friday. The advance was supported by a 4.8% gain in the price of crude oil, which reclaimed its 50-day moving average (59.80), ending the week at $60.21/bbl.

Market Recap - Stocks Lose Ground But Still Finish Month Higher In Front Of G-20 Meeting

The S&P 500 Declined 0.3% This Week, But Still Increased 6.9% This Month To Record Its Best June Since 1955. Price Action Reflected Some Consolidation In Front Of The G-20 Meeting Between President Trump And President Xi After Friday's Close.

The Dow Jones Industrial Average (-0.5%) and the Nasdaq Composite (-0.3%) trimmed their monthly gains to 7.2% and 7.4%, respectively. The small-cap Russell 2000 (+1.1%) played catch-up, increasing its monthly advance to 6.9%.

This week's laggards included the defensive-oriented S&P 500 real estate (-2.7%), utilities (-2.1%), health care (-1.2%), and consumer staples (-1.0%) sectors -- most of which had gotten richly valued ahead of end-of-the-quarter rebalancing. Outperformers included the materials (+1.5%) and financials (+1.5%) sectors. The Philadelphia Semiconductor Index climbed 3.4%, bolstered by better-than-feared guidance from Micron (MU).

There was no shortage of headlines and speculation leading up to the G-20 summit, which at the time of this writing was still in progress. If the consensus view holds true, then more headlines and speculation should be expected. The market was expecting President Trump and President Xi to agree to continue talks and hold off on any additional tariffs, which would placate the market while it continues to assess monetary policy.

St. Louis Fed President James Bullard (FOMC voter) had the market re-calculating its rate-cut expectations this week after he said he didn't think it was necessary to cut the fed funds rate by 50 basis points. Instead, he favored a 25 basis points reduction. This stance from one of the Fed's most vocal doves, who was also the lone dissident in this month's FOMC meeting, tempered growing hopes for a 50 basis points cut next month.

It's still widely expected that the Fed will cut rates, though. Muted inflation pressure indicated in the Fed's preferred inflation gauge -- the PCE Price Index -- and weakening regional PMI readings were the latest data points to assure the market's thinking.

In key corporate news, Boeing (BA) disclosed that the FAA asked it to address a risk that its 737 software patch overlooked, pushing back Boeing's timeline for a fix by another three months. AbbVie (ABBV) announced it will acquire Allergan (AGN) for about $63 billion, or $188.24 per share, in cash and stock.

U.S. Treasuries continued to advance, sending yields lower across the curve. The 2-yr yield declined ten basis points to 1.74%, and the 10-yr yield declined eight basis points to 2.00%. The U.S. Dollar Index was unchanged at 96.18. WTI crude advanced 1.8% to $58.38/bbl amid bullish inventory data and lingering U.S.-Iran tensions.

Market Recap - S&P 500 Sets New Record Highs on Expectations for Easier Monetary Policy

The S&P 500 Gained 2.2% This Week, Setting New Intraday And Closing Records In The Process, On Indications That Central Banks Will Supply The Economy With Easier Monetary Policy If Conditions Do Not Improve.

The Dow Jones Industrial Average gained 2.4%, the Nasdaq Composite gained 3.0%, and the Russell 2000 gained 1.8%.

All 11 S&P 500 sectors finished higher with seven sectors rising at least 1.0%. Energy led the pack with a 5.2% gain, as oil prices surged over 9% amid escalating tensions in the Middle East.

Prior to the week, the stock market had been already been climbing on hopes that the Fed would signal it was willing to cut rates sooner rather than later. The Fed didn't cut rates in its policy meeting this week, and neither did the Bank of England or Bank of Japan, but the central bank did strike the dovishtone the market desired.

In its policy statement, the Fed removed the word "patient" and noted that it will act as appropriate to sustain the economic expansion amid increased uncertainties to the outlook. Several Fed officials, including Fed Chair Powell, and European Central Bank President Mario Draghi pointed to low inflation levels as a case for easier monetary policy.

As of Friday, the fed funds futures market saw a 100% implied likelihood of a rate cut at the end of July.

The market also welcomed some updates on the U.S.‐China trade front. President Trump said he will have an extended meeting with President Xi at G‐20 next week and that the teams will resume talks before the summit. The trade‐sensitive semiconductor stocks reacted positively, evident by 4.0% weekly gain in the Philadelphia Semiconductor Index.

Energy stocks also outperformed, buoyed by a 9.2% gain in the price of oil ($57.37/bbl, +$4.83) after Iran shot down a U.S. military drone over the Strait of Hormuz. President Trump ordered a retaliatory strike on Iran but said he called it off because he didn't think the damage inflicted would have been proportional to shooting down an unmanned drone.

Expectations for lower rates sent sovereign bond yields lower across the world. In the U.S, the 10‐yr note yield dipped below 2.00% for the first time since 2016, but ultimately finished at 2.07% or one basis points lower from last week. The 2‐yr yield declined six basis points to 1.78%. The U.S. Dollar Index fell 1.4% to 96.20.

Market Recap - Stocks gain as market eyes Fed policy decision, G-20 summit

The S&P 500 increased 0.5% this week, lifted by shares of consumer discretionary companies as the market remained hopeful for positive outcomes in the Fed’s policy decision next week and the G-20 summit later this month.

The Dow Jones Industrial Average increased 0.4%, the Nasdaq Composite increased 0.7%, and the Russell 2000 increased 0.5%.

The week began on a high note as the market was relieved to hear that the U.S. and Mexico reached a deal to avert a 5% tariff rate on all good imported from Mexico. President Trump could still reinstate the tariffs, though, if the U.S. thinks Mexico is not doing enough to stop the flow of illegal migration through its borders.

The S&P 500 consumer discretionary (+2.4%), communication services (+1.4%), and utilities (+1.2%) sectors outperformed the broader market. The information technology (-0.2%), industrials (-0.4%), and energy (-0.5%) sectors were the lone sectors to finish lower.

At its high on Monday, the S&P 500 was up 6.1% in a span of six sessions. An understanding that the market may have advanced too far, too fast contributed to some tight-ranged sessions the rest of the week ahead of the Fed’s policy meeting next week and the G-20 summit at the end of the month.

Growing expectations for the Fed to signal a rate cut and lingering hopes that the G-20 summit can improve U.S.-China trade relations contributed to the positive disposition. As of Friday, the fed funds futures market was seeing an 86.4% implied likelihood of a rate cut in July. Those expectations were bolstered this week by muted inflation pressure in the Consumer Price Index for May.

These positive considerations also helped the market withstand geopolitical tensions and weakness in the semiconductor space.

The U.S. blamed Iran for the attack on two oil tankers that were operating near the Strait of Hormuz. Rising tensions helped provide some relief in the price of oil ($52.54, -$1.38, -2.6%), which fell on worries about demand and oversupply. The Philadelphia Semiconductor Index (-1.6%) was pressured by Broadcom (AVGO) after it warned of a slowdown in demand due to trade uncertainty and export restrictions on Huawei Technologies.

Separately, Raytheon (RTN) and United Technologies (UTX) agreed to an all-stock merger of equals, valued at roughly $120 billion, which was met with some resistance from activist investor Bill Ackman.

U.S. Treasuries finished little changed. The 2-yr yield remained at 1.84%, and the 10-yr yield increased one basis point to 2.09%. The U.S. Dollar Index advanced 1.1% to 97.57.

Market Recap - Stock market posts its best week this year on expectations for the Fed to cut rates

The Stock Market Had Its Best Week In 2019, With The S&P 500 (+4.4%) And The Dow Jones Industrial Average (+4.7%) Each Rising Over 4.0%, On Expectations The Fed Will Cut Rates To Mitigate Slowing Growth. The Nasdaq Composite Advanced 3.9%, And The Russell 2000 Advanced 3.3%.

All 11 S&P 500 sectors finished higher with gains ranging from 0.9% (communication services) to 9.1% (materials). 

Coming into the week, the S&P 500 was down 6.7% from its record close, and market participants had sensed that the market was due for a bounce from a short-term oversold condition. The rebound effort was put on hold, though, as regulatory concerns surrounding Facebook (FB), Apple (AAPL), Amazon (AMZN), and Alphabet (GOOG) sent these widely-held stocks reeling on Monday.

Heavy losses from these FAANG stocks barely put a dent in the broader market, though, before the market quickly latched onto the idea that the Fed will be forced to cut rates at least once this year. These stocks recouped most, if not all, of their losses from Monday this week.

Several Federal Reserve officials, including Fed Chair Powell, acknowledged concerns about trade tensions and persistently low inflation levels. Mr. Powell even said that the Fed will act as appropriate to sustain the economic expansion, which the market interpreted as a signal for looser monetary policy. 

Deceleration in jobs growth and soft wage-based inflation in the Labor Department's Employment Situation Report for May bolstered these rate-cut expectations. The fed funds futures market sees a 85.6% implied likelihood of a rate cut at the July 30-31 FOMC meeting.

Nonfarm payrolls increased by just 75,000 (Briefing.com consensus 180,000), and average hourly earnings increased 0.2% (Briefing.com consensus 0.3%). Year-over-year, average hourly earnings were up 3.1% versus 3.2% in April.

Growing expectations for a rate cut sent the fed funds-sensitive 2-yr yield down ten basis points to 1.84%. The 10-yr yield declined six basis points to 2.08%. The U.S. Dollar Index fell 1.2% to 96.58. WTI crude increased 0.8% to $53.92/bbl. 

Separately, after President Trump surprised the market last week by announcing a 5% tariff rate on all imports from Mexico, the two sides reportedly made progress this week. Market participants hoped that the U.S. could delay the planned tariffs from going into effect on Monday.