Market Beat: Record run keeps on running
The stock market has hit record high levels recently. The S&P 500 hit an all-time high of 3,017.80 on July 15.
The Dow Jones Industrial Average hit it’s all time high of 27,398.68 the next day on July 16. The NASDAQ hit its all-time record on July 19 with a reading of 8,264.78.
Year to date as of Monday, July 22nd, the NASDAQ is up 22.78%, the S&P 500 is up 18.74% and the Dow Jones Industrial Average has posted a gain of 16.40%.
Earnings reporting season is getting underway, this week 144 S&P 500 companies will report and ten of the thirty stocks that make up the Dow Jones Industrial Average will report their results. Earnings growth has been forecast to decline somewhat and so far, most of the companies are beating their earnings expectations. Earnings have been driving the market recently.
Next week, in addition to more earnings reports there will be a Federal Reserve Open Market Committee, FOMC, meeting on interest rate policy. Many forecasters are predicting that the Fed will lower interest rates and that could be priced into the stock market already. The Fed meeting is scheduled for July 30-31. The market has a high valuation at this point, the forward PE or price to earnings ratio is at 17.0 which is higher than both the five- and ten-year averages.
Jerome Powell, the chairman of the Fed recently testified before congress and said,” … growth in business investment seems to have slowed, and overall growth in the second quarter appears to have moderated. The slowdown in business fixed investment may reflect concerns about trade tensions and slower growth in the global economy. In addition, housing investment and manufacturing output declined in the first quarter and appear to have decreased again in the second.”
Presently the Fed funds rate has a target of 2.25% to 2.50%. The Fed does have some room to lower interest rates, but not much. By looking at the Fed fund futures contracts, it appears that the markets are saying that there’s about a 75% chance that we’ll see an interest rate cut of 0.25% and about a 25% probability the we’ll get a 0.50% rate cut.
The FOMC announcement will come out at 11 a.m. on July 31. It looks like a rate cut is widely expected and the markets may be very disappointed if they don’t cut interest rates at this meeting.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.