Tuesday’s Fed disappointment is being offset by trade deal optimism on Wednesday.
Stocks futures are rallying after comments from Treasury Sec. Steven Mnuchin (see Buzz), a day after the Fed dashed hopes for a 50-basis point rate cut in July. But now, a trade deal dangles in front of us just as the investing quarter ends.
For that period, the S&P 500 is looking at a 3% gain, but an 18% jump for the first half of the year as of Tuesday. That would mark the best first half return since 2013.
Our call of the day from David Donabedian, chief investment officer at CIBC Private Wealth Management, says investors will have learned a couple of big lessons from the first six months of 2019: the adage “don’t fight the Fed”, and “monetary policy still matters a lot” for markets.
“The first half of the year we had 25 central banks around the world cutting interest rates at various points. In recent weeks, it became clear the Fed is going to join the party in the second half of year with rate cuts and the ECB will do same thing,” along with China, said Donabedian.
“I think another [lesson] would be that we’re still in a world where low bond yields are sending people to equities as [they are] nearly the only place to earn potentially decent returns,” he said.
He said investors may have to endure some talk about a stock market bubble next week as those first-half return numbers make the rounds, but suggests they focus on a 12-month performance, which shows the S&P up only 7%. “Rather than a speculative bubble, it’s more like a recovery from what was a challenging back half of last year,” he said.
Donabedian is betting on equities over bonds, with a focus on tech stocks, minus the so-called FAANG stocks — Facebook FB, -1.95% Amazon AMZN, -1.86% Netflix NFLX, -2.89% and Alphabet’s Google GOOGL, -2.61% He also likes bank stocks, but not consumer staples and utilities, as he says investors would be paying up too much for perceived safety in those sectors.
What matters for the manager is that the U.S. economy remains sound, which is “still the most important factor in a bull market’s ability to continue.”
Plus: Fear-of-missing-out mania could drive another rally for stocks, says Nomura
Read: Trump boasts best June for stocks in years — but a half-dozen signs flash warnings
The markets
Futures on the Dow YM00, +0.29% S&P ES00, +0.30% and Nasdaq NQ00, +0.49% are climbing on trade optimism. Gold GCQ19, -0.52% is down, the dollar DXY, +0.16% is up and the yield on the 10-year U.S. bond TMUBMUSD10Y, +1.34% is just over 2%.
Oil US:CLN19 US:CLN19 is up ahead of a U.S. inventory report, along with Europe stocks SXXP, -0.09% while Asian ADOW, -0.29% equities finished flat.
The buzz
“We were about 90% of the way there (with a deal) and I think there’s a path to complete this,” Treasury Secretary Mnuchin told CNBC, adding that he’s confident U.S. and China leaders can make progress at the weekend G-20. Meanwhile, Bloomberg says the U.S. may suspend the next round of China tariffs.
Micron MU, -1.54% shares are getting a lift from upbeat results, but does that mean an industry recovery has arrived? The chip maker says it has resumed some shipments to Huawei, which is under a U.S. export ban. Separately, researchers say the Chinese tech group’s gear is vulnerable to hackers.
And: Apple reportedly buys autonomous-car start up
Read: Bullard says White House contacted him about job on Fed board
The chart
Bitcoin BTCUSD, +12.66% tapped $13,000 for the first time since Jan. 2018, as our chart of the day shows. And the cryptocurrency is up 203% since the start of April, say Deutsche Bank strategists, led by Jim Reid.
“Obviously recent dovishness from central banks has seen investors look toward alternative currencies, but perhaps Facebook’s unveiling of its Libra currency has seen investors look again at cryptocurrencies with fresh eyes,” Reid told clients.
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