Welcome to this week’s State of the Market. Please click the following link to review the SOTM video . With the S&P 500 near all-time highs in early July 2019, earnings season lay just ahead with an emphasis of the FOMC supporting forward looking price-to-earnings multiples. We aim to share with you our thoughts on why the market has performed as it has in 2019 and the probabilities for the market going forward.

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In this week’s State of the Market we discuss the latest Nonfarm Payroll data, which has led to concerns about the potential for a Fed rate cut as early as the July FOMC meeting on the 31st.

  • With respect to the poor NFP May results, you have to go back seven years the last time we saw consecutive sub-100k prints.
  • Most inflation data continues to support a rate cut by the FOMC in July, but that expectation as determined by Fed Fund futures, suggest a greater percentage of market participants now see only a 25 bps cut vs. the probability of 50 bps cut.
  • Media will continue to question likelihood of any rate cut after the strong NFP report, but other data including inflation data and PMIs suggest a rate remains optimal.
  • Questions as to what the bond yield curve is signaling about the state of the economy will pervade investor sentiment given inversions along the curve YTD.
  • A market pullback ahead of the July FOMC rate decision and as earnings season kicks into gear would prove healthy and becomes increasingly likely as the longevity of the YTD rally pushes PE above the 10-year average.
  • Share repurchase programs continue to support markets along with the two prevailing “puts”. Large money center banks have boosted their share repurchase programs post the CCAR results.

Thank you for reviewing our State of the Markets video! Please feel free to review our trade alerts delivered from May-June attached. We have also closed out our $XLV trade alert for a substantial gain on the year, as of Thursday’s close.

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