Stocks Surge to All-Time Highs: Is the Latest Rally Justified?


Stocks surged to an all-time high after Fed Chairman Powell’s congressional testimony was overwhelmingly construed as paving the way for a rate cut at the end of the month. Citing renewed uncertainties surrounding trade, business investment and inflation, the chairman said conditions had deteriorated since the May Federal Open Market Committee (FOMC) meeting. While markets had discounted the possibility of a half point reduction this month following the strong June jobs report, those expectations re-emerged following Powell’s testimony, with futures now showing 25 percent odds of a half-point cut and 100 percent odds of at least a quarter-point cut. Markets also shrugged off the stronger than anticipated June core Consumer Price Index (CPI) reading, focusing instead on the chairman’s speculation that weak inflation could be more persistent than expected.

The Trade War with China Remains a Stiff Headwind for Economic Growth

U.S. equities established new record highs last week, even though the two most important issues they face got considerably more complicated. On Wednesday, ahead of the Independence Day holiday, the S&P 500 closed at 2995 before ending the week at 2990, both records for daily and weekly closes. But a strong jobs report on Friday dampened expectations of any aggressive shift toward lower rates by the Fed. On the same day, China made it clear that it wants all existing tariffs on its exports to the U.S. to be lifted as part of any trade, something the U.S. is not prepared to do.

Actual Progress on Trade Must be Made to Stabilize the Global Economy


The long-awaited meeting between presidents Trump and Xi has concluded with the two sides agreeing to resume trade negotiations. The U.S. indefinitely suspended the imposition of new tariffs but left in place those already in effect. The U.S. also agreed to allow the resumption of certain technology sales to Huawei, a precondition upon which the Chinese insisted. And the Chinese agreed to buy more U.S. agricultural products.

Central Banks Prepare for a Global Economic Slowdown

U.S. stocks established a new closing high last Thursday on optimism that the Fed is preparing to lower interest rates and hopes that this week’s meeting in Japan between presidents Trump and Xi will prove to be constructive on the trade front. The S&P 500 ended the day at 2954.18, eclipsing the previous record of 2945.83 established on April 30, just prior to the latest escalation of the ongoing trade war with China. The weekly close of 2950 was also a new all-time high, as the index rose 2.2 percent. Energy stocks led the way higher on rising tensions in the Persian Gulf. Otherwise, technology and communication services were the leading sectors, while consumer staples, materials and financials all lost ground.