Market Monitor: July 2019 – Altair’s Semi-Monthly Market Update
Twice a month, we send clients this overview of the markets and roundup of key economic news stories. Similar to Altair Insight, it enables us to share our big-picture views while also highlighting select market returns and developments that we feel are important.
Headlines and Highlights
- Fed lowers rates, says any additional cuts depend on data: The Federal Reserve reduced interest rates by a quarter-percentage point as expected in an effort to help shield the economy from the impact of slowing global growth and the U.S.-China trade war. Fed Chair Jerome Powell called the move a mid-cycle adjustment and disappointed investors by avoiding a commitment to future rate cuts. The S&P 500 fell 1% after his comments but still ended July up 20.3% in 2019, its best seven-month start to a year since 1997. Markets then got off on the wrong foot in August when President Donald Trump said the U.S. will impose an additional 10% tariff starting September 1st on $300 billion of Chinese goods – virtually all remaining imports not already covered by tariffs.
- Bipartisan deal suspends debt ceiling, boosts spending levels: President Trump and congressional leaders struck a two-year deal on the debt limit and budget spending, reducing the risk of a default and automatic, across-the-board spending cuts. The agreement suspends the debt ceiling through July 2021 and will raise the budget cap for discretionary spending to $1.37 trillion in fiscal 2020, up from $1.32 trillion this year. The deal likely will push the annual budget deficit over $1 trillion next year.
- Britain’s new PM promises Brexit or bust: Boris Johnson took over from Theresa May as the United Kingdom’s prime minister after being elected Conservative leader in a vote of party members. The outspoken ex-mayor of London pledged that the UK will leave the European Union by October 31st, “do or die.” The increased possibility of a no-deal exit if a new agreement cannot be reached by that deadline sent the British pound to a 2½-year low.
Selected Market Returns
Sources: Morningstar, Altair Advisers
- We are not concerned with the Fed’s lack of commitment to a longer-term rate cut cycle, as the U.S. economy is healthy and does not appear to be heading into recession. Indeed, a commitment to additional rate cuts could have been interpreted as the Fed signaling that the economy is in worse shape than the data suggest.
- We fully expect the Fed to step in and support markets if growth continues to decelerate in the absence of a trade-war agreement prior to year-end. The fed funds futures market now points to a 98% chance of another rate cut at the Fed’s September meeting, according to the CME Group’s FedWatch tool.
- Second-quarter earnings, while roughly flat with the same period a year ago, have been slightly better than expected despite companies facing headwinds from trade tensions and slowing global growth. We still expect year-over-year growth to resume on the back end of 2019 based on forecasts that global growth should pick up in the fourth quarter.
- The trade war remains the biggest source of uncertainty for markets, as the new threats of additional tariffs underscore. We believe the strong political and economic incentives for both sides to avoid a breakdown will result in a deal before the 2020 U.S. presidential election, although the road to a settlement is likely to contain more bumps between now and then.
The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice