Markets were modestly lower this week, but U.S. equities have consolidated just below all-time highs as market participants paused in anticipation of the G20 Summit in Osaka, Japan, this weekend. While investors are not anticipating an all-conclusive deal at the meeting, consensus expectations continue to revolve around a truce in which the United States will delay tariffs on the final group of $300 billion-plus of Chinese imports with the two sides poised to agree to restart negotiations. Elsewhere, the Federal Reserve (Fed) released the results of its Comprehensive Capital Analysis and Review of the 18 major U.S. banks, which is part of the regulatory reform following the 2008 financial crisis. The Fed noted that the banks have strong capital levels and virtually all are now meeting supervisory expectations for capital planning, which then buoyed the financial sector on Friday. On the macro front, U.S. consumer spending increased moderately in May, but inflation pressure remains benign and below the central bank’s inflation target of 2% with core personal consumption expenditures (Fed’s core inflation gauge) rising 0.2% month over month and 1.6% year over year. Even with a relatively positive economic backdrop, a July rate cut by the Fed still looks like a foregone conclusion, with the decision pending as the G20 meeting lingers into the weekend.
Internationally, the Bank of Japan reiterated its accommodative approach to monetary policy, noting that risks affecting the global economy are having an outsized effect on Japanese exports and manufacturing. As noted in our recently released 2019 Midyear Outlook publication, we continue to expect emerging markets (EM) to lead global economic growth, as structural concerns in developed international markets have dampened growth prospects. On EM, LPL Chief Investment Strategist John Lynch noted, “India’s gross domestic product (GDP) growth is expected to pace growth in emerging economies. And while we wait for a potential U.S.-China trade agreement, Beijing is implementing stimulus to support the Chinese economy, with the possibility of more to come. Population growth, improved flexibility in production, economic momentum, and valuations all point to maintaining an allocation to emerging market equities.”
The week ahead is shortened by the observance of Independence Day in the United States, however, the June jobs report including wage growth and the unemployment rate is on the economic docket. International economic calendars are highlighted by a host of Purchasing Manager’s Index (PMI) data, with Germany, Italy, France, and the composite Eurozone PMIs scheduled to be released.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
Investing in foreign and emerging markets securities involves special additional risks. These risk include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
FTSE 100 Index measures the 100 companies listed on the London Stock Exchange with the highest market capitalization.
The Shanghai Stock Exchange Composite Index is a capitalization-weighted index. The index tracks the daily price performance of all A-shares and B- shares listed on the Shanghai Stock Exchange. The index was developed on December 19, 1990 with a base value of 100. Index trade volume on Q is scaled down by a factor of 1000.
The Hang Seng index is a market capitalization weighted index which tracks daily changes of the 48 largest companies in the Hong Kong stock market.
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The small business optimism index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of ten seasonally adjusted components based on questions on the following: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.
Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor
For Client Use - Tracking #1-868093 (Exp. 6/20)