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Market Commentary for the week ending July 6th, 2019

Summary

  • U.S. stocks close at another record high as trade tensions appear to ease
  • The June employment report comes in stronger than expected
  • Mergers and acquisitions continue at a torrid pace with another announced this week

 

Market Performance Summary

Source: www.YCharts.com

Notable Market Headlines

U.S. stocks closed at another record high as investors appeared to take some comfort in President Trump’s comments regarding trade relations with China. Stocks around the world also generally moved higher as well but continue to lag the performance of U.S. markets. A bit contrary to popular belief the stock market reacted negatively to a strong jobs report due to fears the Federal Reserve may have a reason to not lower interest rates.

At the closing bell on Friday large U.S. stocks as measured by the S&P 500 closed higher for the week with another impressive gain of +1.9%. The S&P 500 is just off its record higher hit mid-week and now up +19.4% for the year. Although the S&P 500 recovered all of its late 2018 losses by late April, the Dow Jones Industrials just this week hit a new record high but still lagged for the week up +1.2%. The tech-heavy NASDAQ Composite delivered an equal gain to the S&P 500 up +1.9% for the week.

Around the world stocks were mixed continuing to lag behind the U.S. markets. Developed international markets were higher by +0.7% while emerging markets closed unchanged on average.

The bright spot among the non-traditional asset classes was real estate with those stocks moving higher by +2.4% and now higher by +17.7% for the year. A report earlier this year shows that the real estate stocks are in meaningfully better financial condition now than they were prior to the 2008 Financial Crisis which may be helping fuel general optimism for these stocks. Gold, after hitting a multi-year high, eased off this week down -0.8% but remains firmly in positive territory year-to-date up +9.0%. Commodities were lower by -0.3% for the week impacted by the price of oil moving lower.

Bond prices slipped fractionally, down -0.1% for the week, resulting in slightly higher yields. The yield on the 10 Year U.S. Treasury, closely watched by many investors, closed the week at 2.037% after falling to a multi-year low mid-week at 1.950%. There are high expectations that the Federal Reserve will lower interest rates sometime this year but the strong employment report for June may have reduced the likelihood.

Stock Highlights

Symantec Corp. (SYMC), a leading provider to cybersecurity software to a wide range of customers, is reportedly being acquired by Broadcom (AVGO) in a deal valued at $15 billion. Broadcom has been on an acquisition spree to expand the company’s product offerings and Symantec is seen as another opportunity to do the same. Symantec’s stock jumped +14.9% on the news and is now higher year-to-date by +32.3% but remains well below is 2017 record highs.

Jefferies Financial Group (JEF), a relatively small diversified financial services company, reported second quarter earnings higher by +12% helped by a surge in trading revenue but held back by a decline in investment banking. This company has struggled for more than a decade, as the accompanying graph of its stock price reflects, never coming close to recovering from the 2008 Financial Crisis. The company’s strong earnings though were good news for investors this week with its stock higher by +11.4% and now up +23.4% for the year.

Source: www.YahooFinance.com

Electronic Arts (EA), one of the world’s largest video game publishers with a market value of nearly $28 billion, saw its stock fall this week by -7.6%. There are growing concerns that the gaming industry may be stalling combined with disappointments related to its second season release of its smash hit “Apex Legends”. In spite of the difficult week, the stock is still higher by +18.6% for 2019.

Economic Indicator - Reported

The Employment Report showed a strong rebound from the prior month adding 224,000 new jobs in June as compared to only 72,000 the month before. Not only did the report show a big gain as compared to May’s but was also meaningfully higher than economists had forecast. The unemployment rate did tick higher though to 3.7% due to an increase in the number of people reporting they are looking for a job.

There are signs that manufacturing in the U.S. is slowing with the ISM Manufacturing Index moderately lower than the month before. Executives who were surveyed said trade tensions with both Mexico and China are hurting exports and impacting their businesses.

Economic Indicators – Upcoming

The following economic data is expected in the coming week:

  • Consumer Price Index (retail inflation)
  • Producer Price Index (wholesale inflation)
  • Jerome Powell (Federal Reserve Chairman) Testimony

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