July 12, 2019 – Stocks closed this week with modest gains as the Federal Reserve’s interest-rate policy again drove markets.
To be clear, the central bank’s interest rate policy hasn’t changed since last week. The difference is that now we’ve heard from Fed Chair Jerome Powell after the market was surprised by a better-than-expected June jobs report.
We discussed this during our Member Only Workshop this week, but to recap: The market was priced for a rate cut of between 25 and 50 basis points in July, but the jobs report made it seem like 25 was the better bet, but then Powell made some remarks to Congress that moved the odds of a bigger cut a little higher.
Currently, the CME’s FedWatch tool puts the odds of a 25-point cut at 78.6% and 50-point cut at 21.4%, which still suggests that 25 is the most likely outcome. Despite the dovish tone from Powell this week, several Federal Reserve governors (although some of them aren’t voting this year) said this week that they didn’t see a reason to cut.
Over in the bond market, where we’ve noted several times recently that yields have been declining even as stocks are rising, suggesting that money is flowing into both asset classes, the yield on 10-year Treasuries put up a second green candle in a row this week after posting eight consecutive red ones. This suggests that traders expect the rate cut to help boost economic growth over the longer term.
All told this week, the S&P gained 0.78%, the Nadsaq added 1.01%, and the Dow Jones rose 1.52%.
The Dow Jones joined the S&P 500 and the Nasdaq in setting new highs this week. The charts below will be showing key levels of support (dotted lines) and resistance (solid lines), as well as all the indices’ major moving averages. The S&P, the Nasdaq, and the Dow will be shown on 1-year charts, while the Russell 2000 will be shown on a 2-year chart.
The Russell has a considerable way to go in order to join the record-high club but has maintained a sideways trend above support. The convergence of all the Russell’s major moving averages at technical support could help the index even if the other major indices pull back. While the S&P, the Nasdaq, and the Dow have close support, those levels of support are not as strong, and the indices could pull back significantly before strong levels of technical support are reached.