The past two weeks were the least eventful of 2019 for financial markets. There was an uncommon silence from the President’s Twitter feed save for July 4th comments, and individual companies were almost uniformly in blackout periods ahead of Q2 earnings season. In the absence of other news flow, the investors focused primarily on positive signaling from the Fed – specifically on Jerome Powell’s testimony to the Senate this past Wednesday, where he all but confirmed a rate cut for later this month. In this context equity markets drifted steadily higher, gaining 3% over the period.
Interestingly, the last time Powell spoke officially was in mid-June, at which time he said that rate cut(s) in 2019 would be data-dependent. Since then we have had the US-China trade truce following the G20 Summit, followed by strong US employment figures – two clearly positive events. Regardless of whether an “insurance” cut by the Fed this month is appropriate, clearly the guidance of being data-dependent was false and the Fed Chair’s credibility continues to get undermined as a result.
In the coming period, investor focus is likely to switch squarely to fundamentals, with Q2 earnings season beginning this week. Expectation for this quarter are low, but for forward guidance remain very high – Street estimates continue to project 15% earnings per share growth on average for the S&P over the balance of 2019.