Despite the Fed’s announcement of a quarter-point cut in interest rates on July 31, the markets have responded in a volatile fashion over the past two weeks.
The market’s performance—a loss close to 4% for the S&P 500 from July 26 through Aug. 9—is being blamed on several factors:
- Ongoing trade tensions, especially between the U.S. and China; the direct threat of new tariffs by the U.S.; and uncertainty regarding China’s possible actions in response.
- Disappointment over the magnitude of the Fed’s cut and comments from Fed Chairman Powell that did not directly support the idea of further rate cuts.
- Fears of a continuing slowdown in global growth.
- Q2 corporate earnings that are estimated to show a decline close to 1% from last year, despite beating lowered expectations in many cases.
The lack of real progress in the trade negotiations with China, coupled with generally weaker economic data around the world, has taken a toll on the price of several key commodities while contributing to gold’s gain.
The Wall Street Journal wrote on Aug. 3,
In the U.S., says GoldPrice.Org, “the ISM manufacturing index hit the lowest point since August 2016 in July, dropping to 51.2 vs. 52 expected. Factory activity has now seen four straight months of downturn and is nearing contraction. … A separate factory index from IHS Markit came in at 50.4 for July, the lowest point in almost ten years.”
Natural gas is another commodity that has been showing significant weakness in 2019, though the reasons have much to do with an abundant supply, rather than solely slowing global growth. According to The Wall Street Journal, prices for natural gas are down 28% for the year, which is affecting the earnings for global energy firms.
While crude oil prices are still up significantly for the year, they have dropped about 16% since April.
Gold, however, is rallying—trading in the opposite direction of copper, natural gas, and crude oil.
Reuters wrote on Aug. 5,
FactSet’s earning projections have the Materials sector showing by far the worst performance of all sectors for Q2 2019.
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