Weekly Market Overview | July 15, 2019

Peter A. Sorrentino, CFA

Macro shot of a graph and stock market figures

After the excitement of the Fourth of July, trading this past week witnessed investors sliding right back into a typical mid-summer sleepwalk with...



  • Dow Jones Industrial Average took top honors for leading, with the index gaining 1.52%, thanks in large part to United Health Care’s 8.44% rally.
  • The Energy Sector led the U.S. market as shares of refiners enjoyed gains ranging from 3.4% for Valero to 7% for HollyFrontier. The recent gains in refining, or ‘crack’ spreads, look to be here for a while.
  • Crude oil rebounded 4.7% and tied with Corn and Soybeans, leading to a three-way tie in commodities.
  • Gold recovered last week’s decline, while the price of Bitcoin fell another 17.31%.

After the excitement of the Fourth of July, trading this past week witnessed investors sliding right back into a typical mid-summer sleepwalk with volume trailing off and volatility, as measured by the CBOE VIX Index, closing the week at 12.28, after being over 20 as recently as the end of May. Last week’s positive showing by both the Dow Jones Industrial Average (up 1.52%) and the NASDAQ (up 1.01%) were deceptive, as the bulk of the market lost a little altitude as the Russell 2000® Index fell 0.36%. This mirrors trading in the Global markets, as the MSCI EAFE® Index lost 0.55%, and the MSCI Emerging Market Index dropped 0.75%.

U.S. Equity Themes:
Stock market leadership has been narrowing again. As highlighted by a few news outlets last week, the number of stocks driving the major indices to new record highs has declined to less than a dozen very large, very liquid stocks. This has happened before during this cycle, as most of 2017’s advance was driven by just seven stocks. So, it is not unheard of, but it does elevate the level of risk inherent in the market when it occurs. Fun fact: for both the Russell 1000® and the S&P 500® Indices, the number of stocks making new 52-week highs is precisely 10%.

In Exhibit 1, we can gain some insight into the lingering concerns of investors. The lines represent the earning estimate trends for the S&P 500® Index since the start of this year for the next twelve months. The line at the bottom represents the balance of 2019, the middle for 2020, and finally, 2021 on top. While each line is higher, and we did see a material revision to this year following the strong first quarter showing, there is a subtler trend here – the revisions across all three periods are persistently negative. A good deal of this has to do with uncertainty regarding interest rates, trade and the upcoming election cycle. So, if investors have crowded into a somewhat narrow part of the market, it is not without reason, and if history is a guide, that which we most expect is least likely to occur.

S&P 500® Earning Estimate Trends

Exhibit 1 (Source: Bloomberg)

Commodity prices did better last week, as both energy and agriculture enjoyed strong rallies with the prices of WTI, Corn and Soybeans up 4.7%. Industrial metals gained some ground, with copper adding 0.6% and nickel 7.9%.

The U.S. Treasury ten-year note edged up in yield to 2.122%, as investors moved back to the status quo while awaiting concrete actions from the Federal Reserve. An interesting development in this has been a steepening (though ever-so-slight) of the yield curve in the month since Chairman Powell’s comments. As seen in Exhibit 2, the yield on one-year bills has fallen from 2.20% to 1.96%, while the yield on the 30-year bond has gone from 2.589% to 2.6474%. While not earthshattering by any means, it may be the first sign that long bond investors are done with this and are starting to demand something for their money.

 
U.S. Treasury Actives Curve

Exhibit 2 (Source: Bloomberg)

For a PDF version of this publication, click here: 07.15.2019_WeeklyMarketOverview.



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July 15, 2019
Peter A. Sorrentino, CFA, Senior Vice President and Chief Investment Officer of Comerica Asset Management Group

Peter A. Sorrentino, CFA

Senior Vice President and Chief Investment Officer, Comerica Asset Management Group

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