Hey folks, I hope you are enjoying these hot days of summer and have found a way to stay cool….we should have a very interesting finish to the month of July with Q2 Earnings kicking into full gear while also answering the question of just how much will the FEDs cut rates the end of the month and how Dovish will they be. We will all know shortly and this can drive the market narrative for the remainder of this summer.
Weekly Sound Bites:
• We are currently in an ideal market for Equities; Steady Lower Growth, Lower Interest Rates and Lower Inflation…the S&P is currently trading at a Forward PE Ratio of 18.04 with a 1.9% Dividend Yield and the 10 Yr. Interest rates hovering around 2.05% with higher probabilities of more rate cuts to come….all of which encourages more money flow into equities in search of higher yields with more corporate leveraged business loans continuing which of course leads to more stock buy backs and acquisitions…short term this is very supportive of higher price action; –longer term it sets the markets up for a larger drawdown…
• And the Super Stars in this market environment are the US Consumers…even though we’ve seen weakness in the first half of 2019 in both manufacturing and industrial, the US Consumer has been notably strong! June Retail sales figures this past week saw it growing over a 6.1% annualized rate which is the fastest pace in over 15 years…and to cap off the strength of the US Consumer (which represents about 70% of the US GDP by the way) we are seeing those companies that are consumer focused have had their Q2 Earnings leading those companies that are more sensitive to manufacturing…So we are seeing the US Consumer helping keep the US Economy moving forward; -and with lower rates still expected to come, will only give the US Consumer another assist…it also shows why the recently released Consumer Sentiment gage remains very optimistic…
• For the week markets are still guessing as to just how much the FEDs will cut interest rates with the probability of a 50 bps rate cut reaching an astoundingly high 70% for a brief period last week before coming down below 20%…a 25 bps rate cut is 100% assured according to the 30 Day Fed Fund Futures market and for me, I don’t like putting a 100% probability on anything that is in the future; well, except death and taxes…well, ok, and maybe a Dovish Fed….but just how Dovish we shall soon see; if the Feds disappoints then the downside could be severe since three rate cuts have been mostly priced into the current price action…
• Global Growth has been slowing significantly and looking at the six leading banks across Europe shows a combined market value of around $200 Billion which is less than that of a Bank of America alone….this shows the limited scope of banking across Europe…And speaking of US Banks, their average 2019 PE Ratios of about 10 are at record lows with average dividend yields of around 3%….and according to Barron’s represent good value over the next few years…
• Gold continues to shine and for our User Group Members, I have been hot on this commodity since we broke out of a longer term Ascending Triangle base pattern at 1372….upside from here looks good and I also like Silver moving along perhaps at a faster clip…There are an estimated 6 Billion ounces of Gold in the World worth more than $8 Trillion and newly minted Gold each year is about 2% of total supply…We can expect larger funds to add to their Gold allocation to the 5% to 10% as the aging Bull Market continues onward…
Enjoy This Weekly Round-Up;
Don’t Be A Rat Brain Trader – Be the Red Striped Zebra !!
Trade Smart !!
hpb
