U.S. stocks started the week down, particularly technology shares, on fears of increased regulation and antitrust scrutiny. However, they quickly snapped their downward trend on news the Fed was considering lowering its benchmark rate. Futures markets are now predicting multiple rate cuts by year end. Stocks rallied through Friday, ending the week nicely higher, which helped mitigate a good chunk of May’s losses. Bonds also ended the week in positive territory as the 10-Year Treasury rate hit 2019 lows.
S&P 500: 2,873 (+4.4%)
FTSE All-World ex-US (VEU): (+2.9%)
US 10 Year Treasury Yield: 2.09% (-0.05%)
Gold: $1,341 (+2.7%)
USD/EUR: $1.134 (+1.5%)
- Monday – Reports surfaced that U.S. regulators will be investigating big tech over antitrust issues.
- Monday – Federal Reserve Bank of St. Louis President James Bullard said lower rates could be warranted soon.
- Tuesday – Fed Chairman Jerome Powell commented that the central bank would respond to trade tensions, if needed, to keep the economy growing.
- Wednesday – ADP private payrolls increased 27,000 in May, much softer than the 185,000 previously estimated.
- Thursday – Fiat Chrysler withdrew its merger attempt with Renault citing French government intervention.
- Thursday – ECB President Mario Draghi kept rates steady, but signaled they would consider cutting rates and restarting bond purchases in the future.
- Friday – The U.S. Labor Department reported 75,000 jobs were added in May, which was fewer than expected and one of the slowest monthly gains throughout this bull market.
There were two primary stories driving markets this week. The first was news that the DOJ and FTC would split antitrust investigations with the DOJ looking at Google and Apple and the FTC looking at Amazon and Facebook. This sent the Nasdaq Composite into correction territory on Monday. It’s too soon to tell if these investigations will bear any teeth, but if they do, it likely wouldn’t materialize for at least a few years. In other words, we don’t see any imminent short-term danger to big tech. Either way, it shines an increasingly brighter spotlight on the sector, and eventually the masses may conclude there is a point of being “too big”.
The second major storyline also came early in the week, when Federal Reserve Bank of St. Louis President James Bullard said rates could be lowered soon. This was followed by remarks from Fed Chairman Jerome Powell on Tuesday that the Fed would respond, if needed, to keep the economy growing. The market cheered the comments, fueling expectations for a rate cut. But this does not feel like the kind of rate cut you want. We think it would be bearish if the Fed feels it has to cut. No one really knows where rates are headed, but lower and longer now feels more likely than it did a few months ago.
The world has grown accustomed to very accommodative monetary policy and officials seem prone to providing it when there are signs of stress. Can this work forever? Probably not, but it may work for quite a bit longer.