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Market Summary

Sometimes bad news is good news as global equity markets rallied sharply this past week, led by the U.S., with oversold conditions and rising expectations for looser monetary policy in response to weakening economic growth cited as the primary drivers. For the week, the S&P 500 notched its highest weekly return yet year-to-date with a 4.5% return, while the Dow Jones and Nasdaq Composite returned 4.8% and 3.9%, respectively. However, the poor economic data also drove more investors to the safe-haven of U.S. Treasury bonds as the 10-year Treasury yield closed the week at just 2.08%.

A weak employment report on Friday sparked a large portion of last week’s rally in equity prices as some investors believe the declining economic outlook will soon prompt a rate cut from the Federal Reserve. Per the labor report, the U.S. economy added only about 75,000 jobs last month compared to expectations for 185,000 jobs, and the Labor Department revised down the previous two months’ numbers by 75,000, as well. According to the CME FedWatch Tool, the market is pricing in an 80% probability of a rate cut by next month’s July Fed meeting. Although some investors are bullish on the prospect of loosening monetary policy, a rate cut would also indicate a notable deterioration in the economic outlook that may suppress corporate earnings growth and future stock returns.

The stock market rally has carried into this week’s early trading after President Trump announced Friday evening that an agreement with Mexico has been reached to end the threat of tariffs on Mexican imports, at least temporarily. Under the new agreement, Mexico has agreed to increase border enforcement with its newly established National Guard to stem illegal migration from Central America. The U.S. will review the effectiveness of Mexico’s new policies after 90 days.

In the week ahead, investors will get an updated look at U.S. inflation and retail sales, as well as the latest read on consumer sentiment.

Economic Highlights:

Employment: While the unemployment rate remained unmoved at a 49-year low of 3.6%, wage growth in May notched a 3.1% increase over the prior year, which came in below expectations for 3.2% wage growth.

Manufacturing: The U.S. ISM manufacturing index reading fell 0.7 last month to 52.1, which was below the consensus expectation for a 53.0 reading. The index is still in expansion territory but has slowed notably since August of last year when it posted a 60.8 reading, with trade tensions, slowing global demand, and the tight labor market all cited as factors in the slump.

US Economy – The Week Ahead

Tuesday, 6/11/2019

  • NFIB Small Business Optimism Index – Consensus: 102.3 (-1.2% MoM), Prior Month: 103.5 (1.7% MoM)
  • U.S. Producer Price Index (PPI) Year-Over-Year – Consensus Estimate: 1.9%, Prior Month: 2.2%

Wednesday, 6/12/2019

  • U.S. Consumer Price Index (CPI) Year-Over-Year – Consensus Estimate: 1.9%, Prior Month: 2.0%

Thursday, 6/13/2019

  • Initial Jobless Claims – Consensus Estimate: 218,000 (0% WoW), Prior Week: 218,000 (0% WoW)

Friday, 6/14/2019

  • Retail Sales (Month-over-Month) – Consensus Estimate: 0.7%, Prior Month: -0.2%
  • Industrial Production (Month-over-Month) – Consensus Estimate: 0.2%, Prior Month: -0.5%
  • University of Michigan Consumer Sentiment Survey (Preliminary) – Consensus Estimate: 98.0 (-2.0% MoM), Prior Month: 100.0 (2.9% MoM)
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