Market News – June 24, 2019

THE FED IS NO LONGER “PATIENT”:  In recent statements by the U.S. Federal Reserve Bank, Chairman Powell has used the word “patient” when discussing how the Fed is looking at data with regard to whether it will entertain any rate cuts.  The word “patient” was not included in last week’s statement by the Fed, and stock prices jumped.  Investors hang on Fed semantics.  Now it is generally expected that the Fed will cut rates in July.  I’m not convinced.  What if progress is made towards a U.S./China trade agreement, we receive a solid June employment report, and retail sales continue to rise?  Are we now rooting against that in order to get our rate cut?  In any event, it seems like the Fed’s response to the data in the next month may move markets more than the data itself.

STOCKS JUMP:  All major U.S. stock indices rose at least 2% this past week.  The major catalysts were the U.S. Federal Reserve and other central banks indicating a willingness to cut rates if necessary, and cautious optimism that trade deals are going to get done.  Those are two big ifs on which to base a rally.  On Tuesday, the European Central Bank’s president said that the bank could roll out fresh new stimulus as soon as July.  On Wednesday, the U.S. Federal Reserve signaled it would start to lower interest rates if the economic climate did not improve in coming months.  Also this week, President Trump tweeted that trade talks with China had taken a turn for the better.  The Middle East issues and the consequent rise in oil prices did not seem to impact markets.

OIL PRICES JUMP ON MIDEAST TENSION:  Oil prices had come down a bit on concerns about slowing global economic growth and trade tensions.  This week, prices shot up with the global benchmark Brent crude settling at $64.45 a barrel on Thursday, up 4.3% in one day.  OPEC and allies including Russia have been generally cooperating in limiting production to keep oil prices from falling.  This coalition of countries will meet again the first week of July to try to continue to coordinate efforts.  In the meantime, Iran, it seems, is trying to provoke some sort of chain of events which will cause prices to rise in order to reap the benefits of those prices.

SALES OF EXISTING HOMES REBOUND:  With mortgage interest rates falling and good weather, it was no surprise that sales of existing homes rebounded in May, jumping 2.5% from April.  May sales were 3.3% lower than May of 2018, however.  There is currently an inventory of existing homes on the market equivalent to 4.3 months of supply, which is up a bit from last month, but still low by historic standards.

REFERENCES:

STOCKS JUMP: https://www.wsj.com/articles/stocks-are-sitting-pretty-heading-into-summer-11561109403
THE FED IS NO LONGER “PATIENT”: https://horsesmouth.com/how-stocks-react-to-fed-rate-cuts
OIL PRICES JUMP ON MIDEAST TENSION: https://finance.yahoo.com/news/oil-prices-rise-u-stockpiles-005630411.html
SALES OF EXISTING HOMES REBOUNDS:  https://www.calculatedriskblog.com/2019/06/nar-existing-home-sales-increased-to.html