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Market Commentary for the week ending June 22nd, 2019

Summary

  • The Federal Reserve leaves interest rates unchanged but hints at future cuts
  • U.S. stocks rally to new all-time highs and international stocks surge higher
  • Gold climbed to a new 6-year high as investors apparently embrace this safe-haven

 

Market Performance Summary

Source: www.YCharts.com

Notable Market Headlines

Stocks rallied around the world with the riskier emerging markets leading the way higher. All markets seemed to be helped by the Federal Reserve’s indication that rate cuts may be coming in the future due to slowing economic conditions. Rates cuts in the U.S. are not only helpful to the U.S. economy but also meaningfully helpful to those around the world.

At the close of the week, U.S. large stocks, as measured by the S&P 500, were higher by +2.1% having hit a new all-time high on Thursday. The S&P 500 was the laggard though as the Dow Jones Industrials climbed +2.4% and the tech-heavy NASDAQ resumed its leading roll jumped +3.0%. Small U.S. stock trailed behind but still posted a strong gain of +1.8%. Year-to-date large U.S. stocks are higher by +17.6%, small stocks by +15.0%, and notable is the NASDAQ Composite’s 2019 rally of +21.1%.

As strong as U.S. stocks were, International stocks did better this week with developed markets higher by +2.5% lead by the Eurozone up +3.1% while stocks in Japan gained +1.8%. It was international emerging markets that really jumped up +4.8% for the week. A couple of the best performers were Brazil higher by +6.4% and China’s market gaining +6.0%. In spite of this very strong week, emerging markets continue to lag behind year-to-date up +9.5%.

In addition to the news from the Fed, the other big news is the rising tensions between the U.S. and Iran. This had a direct impact on both Commodities and Gold prices. Commodities, predominantly a measure of the price of oil, jumped +3.8% on concerns that the issues with Iran could disrupt some supply.

Furthermore, the heightened uncertainty arguably drove investors to buy gold, an asset generally considered a safe-haven during uncertain times. The price of gold jumped +4.3% to a 6-year high as illustrated in the accompanying graph.

Source: www.YahooFinance.com symbol GLD

Bond prices moved on the Federal Reserve’s hint of lower interest rates in the future with prices higher by +0.5%. The yield on the benchmark 10-Year U.S. Treasury Bond dropped below 2% during trading on Thursday, the first time since late 2016, but inched higher thereafter to close at 2.058%. This drop in yields could certainly be perceived as an indication of investors’ concerns about future economic growth slowing as well as another sign investors are seeking a safe-haven for their money.

Stock Highlights

News Corp. (NWSA), a media giant that owns the Wall Street Journal and much more, said it is considering the sale of its News America Marketing Business. Management says such a move would streamline its business allowing it to focus on the creation and distribution of premium content as well as its digital real estate services. The company stocks jumped +14.4% on this news and is higher year-to-date by +19.2%.

As the price of oil jumped on concerns about supply disruptions due to growing tension with Iran, energy stocks rallied. The accompanying table highlights some of the biggest moves in the sector. Prior to this week’s rally, all of these stocks had been lagging behind the S&P 500.

Source: www.YCharts.com

Incyte Corp. (INCY), a $19 billion market value biotechnology company whose leading drug treats two types of rare blood cancer, saw its stocks surge this week on news that pharmaceutical giant Pfizer is acquiring cancer drug maker Array BioPharma in a deal valued at $11.4 billion. This Pfizer deal raises expectations that other such deals may follow. Incyte’s stock gained +14.1% and is higher by +39.9% year-to-date but as the accompany graph shows this stock is not without tremendous ups and downs at times.

Source: www.YahooFinance.com

Carnival Cruise Lines (CCL), the largest cruise company in the world, reported quarterly results that were below last year’s numbers but better than Wall Street was expecting. The disappointment though was managements reduced earnings guidance for the remainder of the year partially due to the U.S. government’s ban on cruises to Cuba. Carnival’s stock fell -12.2% this week and is off -5.4% for the year. Based upon trailing earnings, this stock is about as inexpensive as it has been in more than a decade as illustrated in the below graph.

Source: www.YCharts.com

Economic Indicator - Reported

Existing Home Sales rose 2.5% in May from the prior month to a seasonally adjusted annual rate of 5.34 million. Mortgage rates dropping below 4% are believe to be helping the market. Although May was the first month-over-month gain in 2019 and better than economists had expected, sales remain below year-ago levels.

Housing Starts slowed slightly in May to 1.27 million annually but this was meaningfully better than economists forecast. Similar to Existing Home Sales, these numbers are below year-ago levels.

Economic Indicators – Upcoming

The following economic data is expected in the coming week:

  • Case-Shiller Home Price index
  • Consumer Confidence Index
  • New Home Sales
  • Durable Goods Orders

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