Markets End Week Mixed, but Post Best First Half In Over 20 Years
WEEKLY MARKET UPDATE – July 1, 2019
WEEKLY MARKET UPDATE – July 1, 2019
Commodities were positive for the week as oil prices increased 1.81% to $58.47/bl. This is the second consecutive weekly increase as the prospects of tighter oil supply rippled through markets. However, a recent government report showed that US crude and product shipments hit the highest level since 1990. In recent years, oil prices have been especially sensitive to US crude inventory levels. Geopolitical risks have also been playing a part in oil prices as the United States relationship with Iran continues to deteriorate and additional sanctions being placed on the Arab nation.
Gold prices rose by 1.10%, closing the week at $1,411.60/oz. This is the second consecutive weekly gain and the first time the metal closes over $1,400/oz since August of 2014. Throughout the week, events such as additional sanctions being placed on Iran, uncertainty surrounding President Trump and President Xi of China meeting at G20, and stock market volatility drove investors into the metal. Additionally, price momentum has been relatively strong, though some indicators are signaling the metal might currently be overbought. However, gold has the potential to continue to rise as risks stack up and the prospects of lower interest rates remain on the horizon.
The 10-year Treasury yield fell from 2.07% to 2.00%, resulting in positive performance for traditional US bond asset classes. During the week, Treasury yields fell on both the short and long end of the yield curve as the Fed signaled a willingness to cut rates if market and economic activity deteriorate. Certain economic data coming in below analyst expectations, especially manufacturing gauges, provides a potential case for lower interest rates. However, the economy as a whole remains relatively healthy and if indicators were to rebound or continue to improve in some instances, a rate cut might be avoided altogether.
High-yield bonds were negative for the week as riskier asset classes were mixed and credit spreads loosened. However, as long as US economic fundamentals remain healthy, higher-yielding bonds have the potential to experience further gains in the long-run as the risk of default is still moderately low.
Asset class indices are positive so far in 2019, with large-cap US stocks leading the way and aggregate bonds lagging behind.
Lesson to be Learned
We do the worst possible thing at the worst possible time because we are most certain that we are right just when we are most likely to be wrong.”
– Jason Zweig
Investors often cost themselves money because of irrational short-term behavior. When exuberance or fear set in people tend to act on emotions, leading them to make decisions at the worst time. The best way to avoid this irrational behavior is to implement a plan with predefined steps to take ahead of time. If you stick with a plan and maintain a properly diversified portfolio, you increase your chances for a successful investment outcome in the long-run.
FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).
In a nutshell, we want the RPI to be low on the scale of 1 to 100. For the US Equity Bull/Bear indicator, we want it to read at least 66.67% bullish. When those two things occur, our research shows market performance is the strongest and least volatile.
The Recession Probability Index (RPI) has a current reading of 26.39, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 66.67% bullish – 33.33% bearish, meaning the indicator shows there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).
The Week Ahead
Investors will be looking to see how markets react following the G20 Summit meeting between President Trump and Chinese President Xi.
More to come soon. Stay tuned.
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