One day more, another day, another destiny
The recent rise in US stock markets is apparently record-breaking as the Dow Jones Index rose for its 12th straight session. Its longest streak since 2017, and apparently should the index manage one more day this will equal the 13 consecutive days of rises in Jan 1987, and we are only 2 days away from its longest winning streak ever dating back to 1897 of 14 days. This is all according to a report in Barron’s. The pain trade continues for many investors. Earnings reports are coming thick and fast and so far the low expectations set for many are being met, and in some cases exceeded.
On the economic front the latest flash Purchasing Manager Surveys for developed economies, suggest a slowing in the service sector, and a levelling out in the manufacturing sectors, leading to an overall dip in the composite index. The International Monetary Fund upgraded their expectations for global economic growth this year to 3% yesterday, based on limited science one would imagine. China’s economy will grow around 5% this year, the US about 2%, and Europe not at all, put that together and one gets about 3% for the global economy. I would imagine they took a lot longer to come to the same end conclusion, with much head-scratching.
The main event of the day will be the result of the monthly Federal Reserve meeting in which much expectation is that we are coming to the peak in US interest rates with one final raise tonight. The announcement itself is a foregone conclusion, the accompanying statement from the Fed chair will be the attention-grabbing part. The ECB are close to the peak with expectations that they will likewise announce a 25 basis point hike and signal that possibly one more hike is likely to occur in September. Interest rates may be close to peaking, but that does not necessarily mean the trend will be reversed any time soon. Expectations are the ECB may not start cutting rates well until into next year. The market does predict the Fed to cut once before the year-end, but our expectation is that is not what Powell will forecast later today. It is more than possible he will lead the market to believe that despite US interest rates reaching their highest level in 22 years, the Fed may not yet be done in its attempt to bring inflation back to its 2% target.
As for stocks as the S&P 500 continues to defy gravity, there is plenty for the bulls and the bears. The bulls will point to a resilient US economy and the hope China will boost its economic growth. The bears will point to what the bond market is telling you, the continued weakness in leading indicators and further evidence of tighter lending standards.