Monthly Economic Update: July 2019



Hello, Derek Merkler here with my monthly economic update video for July 2019.

After a disappointing May, U.S. stock markets roared back in June. The S&P 500 picked up 6.9 percent, the Dow Jones Industrial Average rose 7.2 percent, and the NASDAQ Composite gained 7.4 percent.[1]During the month, the S&P 500 reached a record high, while the Dow Industrials and the NASDAQ Composite came within a whisper of their historical peaks, which they’ve since broken at the beginning of July.1So, what fueled the rally?

Two factors: optimism over a potential interest rate cut by the Federal Reserve and a growing belief that the U.S. and China are actively working to solve their tariff dispute.

Stock prices opened the month lower, but soon climbed on hopes that the Fed would cut short-term rates. News that the U.S would not impose further tariffs on Mexican imports also helped the rally. Stocks lost a bit of momentum due to escalating tensions in the Middle East, only to rise again on the news of President Trump’s positive phone call with China’s President Xi. Wall Street, however, finished the last week of the month mixed, as all eyes turned to the G20 summit.[2],[3]

While markets applauded the progress on trade, attention in June shifted to the Federal Reserve and what’s next for short-term interest rates.

The Fed kept the federal funds rate unchanged at its June two-day meeting, followed by a “dovish” statement indicating it would take appropriate actions to sustain economic growth.[4]

Since markets have already assumed a future rate cut is inevitable, the potential for volatility may increase if the Fed continues to hold steady on rates.[5]

Remember, the market’s recent rise has been partially driven by the anticipation of a future rate cut. If the Fed were to suggest that a rate adjustment is not in the immediate offing, the market may find itself repricing stocks to reflect changing expectations.

And frankly, the fact that major market participants and their computers seem to be making “investment” decisions based on what the Federal Reserve may do with interest rates over the next few months is ludicrous. I offer these summaries to provide background on what and, perhaps, why things happen in financial markets.  But, by no means am I suggesting that you change your investment strategies based on these speculations.

Stock markets may go up from here… or down… or sideways for a long period of time.  And not all investments move together, that’s why we diversify.  So, regardless of what happens in the near future, you should be accumulating investments according to your financial plan.  If you don’t have a financial plan, send me a message.

That’s it for this month’s update.  See you next time!



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