The S&P 500 Index notched a new record close yesterday, just two days after it officially became the longest bull market on record when it surpassed the market run-up seen in the 1990’s. Gains coincided with a wave of central bank-related activity that was capped off by a speech from Federal Reserve (Fed) chair Jerome Powell in which he discussed "Monetary Policy in a Changing Economy."
The Fed was in focus throughout the week, beginning on Monday with a tweet from President Trump. In it, he criticized the Fed’s pace of interest rate hikes. Though the Fed is independent of the executive branch, the comments helped spur a pullback in the dollar and Treasury yields, which facilitated risk-on sentiment and helped push stocks higher. However, several regional Fed presidents subsequently dismissed the notion that President Trump (or any president) would influence the central bank’s monetary policy decisions. Their comments were supported by Wednesday’s release of the minutes from the Fed’s latest monetary policy meeting, which showed that many participants suggested that if the incoming data continue to support a strong economic outlook, it would likely soon be appropriate to hike interest rates again. That message was reiterated by Fed chair Powell during his speech at the annual Economic Policy Symposium in Jackson Hole, Wyoming, where he noted that continued strong growth in income and jobs would lead the Fed to continue its gradual course for additional rate increases.
Overseas, major developed and emerging markets indexes bounced back from last week’s losses. Among the winners, China’s Shanghai Composite recouped roughly half of the 4.2% it shed the prior week as investors largely shrugged off the implementation of more U.S. imposed tariffs and weaker-than-expected retail sales and industrial production figures (mid-week trade negotiations between the U.S. and China were effectively a non-event). Yuan strength also provided support as China’s currency continued to retrace its nearly 10% slide against the dollar since early April following more intervention by the People’s Bank of China. Meanwhile, Japan’s Nikkei notched another week of strong gains in the face of the country’s central bank embarking on what many have dubbed “stealth tapering” to its quantitative easing program, even with recent data showing inflation remains well below its 2% target level. In Europe, minutes from the last European Central Bank meeting were also released. While the bank acknowledged protectionism and trade tensions as potential threats to its outlook, policymakers noted that uncertainties around its inflation outlook are receding and the group expects the economic slowdown seen in Europe in the first quarter of this year will prove transitory. As a result, it remains on track to wind down its quantitative easing program by the end of the year. On Europe, LPL Chief Investment Strategist John noted, “While data suggest growth in Europe near 2% could continue, we believe the risk-reward favors emerging markets stocks over the balance of the year.”
Next week, investors get updates on consumer confidence and inflation in the U.S. and Eurozone, among other countries. Also, U.S. consumer income and spending data, an important gauge of the economy’s health, is due out Thursday; and expect traders to keep an eye on the Personal Consumption Expenditures Index, a key inflation metric hovering around the Fed’s target range. Track these and other important events on our Weekly Global Economic & Policy Calendar.
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