Dovish Fed Pushes Markets to New Highs

The major market indices finished the week solidly higher with the Dow, S&P 500 and Nasdaq Composite all posting new all-time highs.

July 15, 2019    |    By Mike Schwager

Performance for Week Ending 7/12/2019:

The Dow Jones Industrial Average (Dow) added 1.52%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) gained 0.72%, the Standard & Poor’s 500 Index (S&P 500) rose by 0.78% and the Nasdaq Composite Index (NASDAQ) tacked on 1.01%. Sector breadth was positive with 7 of the 11 S&P sector groups finishing higher. The Energy sector (+2.15%) was the best performer followed by Consumer Discretionary (+2.14%) and Technology (+1.52%).

Index* Closing Price 7/12/2019 Percentage Change for Week Ending 7/12/2019 Year-to-Date Percentage Change Through 7/12/2019
Dow 27332.03 +1.52% +17.17%
Wilshire 5000 30985.57 +0.72% +20.33%
S&P 500 3013.77 +0.78% +20.22%
NASDAQ 8244.14 +1.01% +24.25%

*See below for Index Definitions

MARKET OBSERVATIONS: 7/8/2019 – 7/12/2019

The major market indices finished the week solidly higher with the Dow, S&P 500 and Nasdaq Composite all posting new all-time highs. The catalyst for the gains was signaling from the Federal Reserve that it is likely to reduce interest rates at the conclusion of the July 31 Federal Open Market Committee (FOMC) meeting. A quarter point reduction in rates now seems like an all but a done deal, although the market is currently placing a 20% probability that a half-point reduction in rates could occur. The latter bet, however, seems at odds with the rebound in June payrolls and the stronger than expected reading on core consumer prices. While a 25 or even 50 basis point reduction in rates probably won’t have much of a near-term impact on the economy, from a market point of view, the confidence that the Fed is ready and willing to act (and also not raise rates), should be supportive of investor confidence.

Powell Testimony: Fed Chairman Powell delivered his semiannual testimony to Congress this past week. Although Jerome Powell's congressional testimony merely underlined the Fed’s case for easing policy to insure against the economic effects of a trade war and sub-target inflation, it was enough to push the major market indices to new highs. The key snippet from Powell’s remarks was "many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened. Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook. Inflation pressures remain muted." Powell's comments were strengthened by the release of the June FOMC meeting minutes that indicated central bank officials perceived economic risks as having "increased significantly" even as they voted nearly unanimously to keep benchmark U.S. interest rates at their current low levels.

Market View: In light of the strong year-to-date gains, the ongoing uncertainty surrounding the trade spat with China, and signs the global economy is slowing, we have tempered our near-term outlook for risk assets. We are not bearish on the equity market, but with the S&P 500 recently reaching a new all-time high, the overall risk/reward outlook has now become less compelling. In the near-term, market price seems to have outdistanced underlying fundamentals as the strong year-to-date performance has resulted solely from the expansion in the market’s P/E multiple. This scenario could leave the market vulnerable to earnings disappointment or negative developments in trade. Earnings growth will be the key driver of forward performance and until revisions begin to move higher, upside from current levels will likely be limited. Better buying opportunities will likely emerge down the road, but now is not the time to be chasing the market higher.

The Week Ahead: Second quarter earnings season will kick-off in earnest this week with 57 members of the S&P 500 scheduled to release results. Amongst this group are seven members of the Dow Average. Expectations heading into reporting season are very muted with consensus expectations from Bloomberg forecasting a 2.4% decline for the quarter. Focal points on the data calendar include; the July Empire State manufacturing survey, June retail sales, June import/export prices, June industrial production, June housing starts, the July Philadelphia Fed Business Outlook Survey, and the University of Michigan’s July consumer sentiment survey. Also of interest will be Wednesday’s periodic Beige Book report from the Federal Reserve. The Fed speaking calendar will be busy with ten appearance scheduled throughout the week.


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

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