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July Economic Update

Market Summary

The typically sluggish summer month of June turned in a historical performance this year with the S&P 500 hitting another record peak and gaining an impressive 6.89%. There was also a very bullish surprise in bullion, with gold becoming more valuable than it had been in six years – a particularly interesting performance since gold often moves inversely with the stock market. (1,2)

One of the primary catalysts for such a sprint to the upside in the equities market was the Federal Reserve hinting at the possibility of imposing an interest rate cut before the year is finished. In addition, there were some signs of progress with China at the G20 Summit, which was welcomed with open arms by Wall Street.

China Negotiations

Early last month, it seemed that trade negotiations between China and the U.S. were stalled and President Trump threatened to assess tariffs on $300 billion more of Chinese imports. However, sentiment changed sharply when on June 29, President Trump told reporters gathered at the G20 Summit that he and Chinese President Xi Jinping were planning a resumption of formal trade negotiations. Additionally, President Trump said that the U.S. would refrain from imposing tariffs on an additional $300 billion of Chinese goods for the “time being.” This was a relief from a six-week stalemate in trade talks which had weighed on the U.S. and foreign stock, bond, and commodities markets in May and June. (3,4)

"The Fed" and Interest Rates

The Federal Reserve left the benchmark interest rate alone at its June meeting, but its newest policy statement and dot-plot interest rate forecast drew considerable attention. Among seventeen Fed officials, eight felt rate cuts would occur by the end of the year, eight saw no rate moves for the rest of the year, and just one saw a 2019 hike. The policy statement also removed reference to the Fed being “patient” about its stance on interest rates, and it mentioned economic and political “uncertainties” that may affect its near-term outlook. (5)

Fed Chairman Jerome Powell also moved the market on two other occasions during June. On June 4, stocks had their best day since January after he noted that the Fed was keeping a close eye on trade and tariff issues and would “act as appropriate to sustain the expansion” of the economy. Stocks had their poorest day of the month on June 25 after Powell commented that there was no need to “overreact” to a “short-term swing in sentiment” or incoming data. (6,7)