Last Month’s Market Update
Last month the market was reeling from new uncertainty surrounding the China trade deal. We were looking to see whether the technical level of 2800 would serve as support or if we would fall below to much lower levels. Being back around 2800 on the S&P felt like a “market reset” that allowed everyone to get on the same page. Then the markets moved higher.
Now we sit right at all-time highs as the market hopes for a perfect storm of events that could give investors a trade deal with China AND an accommodative Fed.
How Did We Get Here?
On May 31st, President Trump announced a 5% tariff on Mexico in response to the border issue. Markets tanked on this news as they didn’t like the fact that he was using tariffs for more than just trade tactics. However, a week later Trump suspended the tariffs “indefinitely” as they came to an agreement and the markets came back.
Federal Reserve Meeting
The most important variable (in my opinion) in keeping this market rally alive is still an accommodative Federal Reserve. And from the most recent Fed meeting June 19, it sounds like they are still on board as they committed themselves to acting “as appropriate to sustain the expansion.” The FOMC also removed the word “patient” from the policy statement which leads many to believe that they have opened the door for a rate cut at the July meeting.
China Trade War
While I feel the Fed is the most important variable, reaching a trade deal with China is a very close number two. This issue single-handedly sent world markets reeling when both sides walked away. However, recent positive comments about Presidents Xi and Trump’s planned meeting have helped markets get back within a few points of all-time highs. The two leaders are set to meet at the G-20 and that meeting will set the tone for the summer.
Last month Iran tensions were heating up, but recently things have really escalated as Iran was linked to bombing a tanker and downing an unmanned US drone. President Trump had military strikes ready to go before calling them off in favor of sanctions. This is definitely a situation to watch closely.
Big Tech Regulations Being Discussed on Capitol Hill
House lawmakers plan to do a sweeping review of Facebook, Google and other giant tech companies to see if they have become so large that they have stifled competition and harmed consumers. Things probably won’t get any easier leading into the election as both sides of the aisle have issues with big tech. And, as if they weren’t already under enough scrutiny, Facebook officially announced their cryptocurrency called Libra. At this point, it seems like they’re begging for a government crackdown.
IPOs, Mergers and Acquisitions News
The IPO market continues to stay hot. We mentioned Beyond Meat coming public last month and they have remained red hot. The stock price has exploded from it’s IPO of $20. It reached $200 per share before pulling back to around $150 as of the 6/25/2019 close. Pet e-commerce player, Chewy, and workplace messaging platform, Slack, are the latest companies to come public and we’ll see if they can enjoy some of the same success.
Raytheon and United Technologies merged to create a new aerospace giant. This will be an interesting combo as it combines a mega government defense contractor with a booming aerospace company. Basically, science-fiction is becoming a reality with this merger.
What to Expect with the Markets Going Forward
We are now within striking distance of all-time market highs. A tantalizing combination of an accommodative Fed and optimism around a China trade deal has reignited the rally. The major worry now is that the world economy is starting to slow and that there is little that can be done to stop it. However, it appears that central banks are ready to move aggressively in an attempt to keep it going.
With the Fed behind the market, I expect that we keep melting upward to new highs, unless we get another setback in negotiations with China. Just remember, things can turn on a dime and often when you least expect it. So, there is nothing wrong with taking some profits if you have yet to do so.