Overview: Stocks were mixed across the globe last week with emerging markets (MSCI EM) leading the way with a positive 0.8% return, while U.S. stocks closed lower. Markets lost momentum late in the week following mixed earnings results and Iran’s capture of a British tanker in the Strait of Hormuz. Investors continue to speculate on Federal Reserve interest rate changes at its July 30-31 meeting with the markets now pricing in a 75% probability of a 25 basis points (bps) cut and a 25% chance of a 50 bp cut at next week’s meeting. Interest rates have settled into a range ahead of the meeting with the 2-year and 10-year Treasuries trading at 1.81% and 2.05% respectively. Using this 2-year 1.81% as a proxy, markets are already pricing in nearly 3 rate cuts, given the current funds rate of 2.50%.
This week is a banner period for company earnings with 25% of the S&P 500 companies reporting quarterly results. According to JP Morgan, 72 companies (22.5% of market cap) having reported so far. Seventy-eight percent of companies have beaten on earnings, while 42% have beaten on revenue. JP Morgan stated, “Slower global growth, lower oil prices, a stronger USD, margin pressures and fading effects from tax reform will continue to weigh on earnings this quarter”. It will be a busy week for the economic calendar, with data on housing, durable goods, and trade. The U.S. GDP will be reported on Friday, with the economy expected to grow 1.9% for the second quarter.
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