by Connor Darrell
CFA, Assistant Vice President – Head of Investments
Markets were largely unchanged last week as investors weighed mounting geopolitical concerns against the potential for an easing of monetary policy. Technology stocks were under pressure for a majority of the week as the ongoing trade dispute between the U.S. and China has hurt global microchip sales.
Economic data released throughout the week did little to increase optimism that the global economy can stave off a slowdown in economic growth rates. Retail sales grew 0.5% month-over-month, slightly below the consensus forecast of 0.6%, and the University of Michigan Consumer Sentiment Index ticked down to 97.9 from May’s reading of 100. Elsewhere, a survey of businesses revealed a decrease in confidence among large multinational corporations; the fifth such decline in as many quarters. Most key metrics remain healthy in absolute terms, but the rate of change has certainly tilted lower in recent months.
Watching the Federal Reserve (Again)
Last week’s inflation data revealed a month-over-month increase in consumer prices of just 0.1%, a far cry from the Federal Reserve’s annual target. The Federal Reserve will meet this week to discuss monetary policy and markets will be paying close attention to the committee’s decision on interest rates, as well as its commentary on the economy. The bond market is continuing to price in expectations of forthcoming rate cuts, and the weakening in inflation expectations has only bolstered those expectations. The Federal Reserve has consistently communicated that its decisions are “data-dependent”, and the data has become increasingly difficult to interpret as a result of last year’s tax cuts and this year’s escalation in trade tensions. Ultimately however, investors should not concern themselves too much with the level of interest rates or the Fed’s next policy move. The fact that inflation remains so low is actually a positive sign that the economy has more room to expand, since inflation is often a key sign of tightening in the economy that precedes key inflection points in the economic cycle.