Highlights
• Stock prices enjoyed their fifth consecutive week of gains as investors looked past trade-related issues.
• We think the current economic expansion and equity bull market could continue for some time.
• Over the next 12 months, we expect both stock prices and bond yields to increase.
Stocks prices continued to move higher last week as investors looked past a somewhat disappointing July jobs report and ongoing trade-related tensions between the United States and China. The biggest market story was a sharp rebound in the technology sector after a selloff the prior week.1 Notably, with the price advance, Apple’s market capitalization surpassed the $1 trillion mark.1 In other sectors, defensive areas and health care also outperformed, while industrials and financials moved slightly lower.1 The S&P 500 Index gained 0.8 percent for the week, marking a fifth consecutive weekly advance.1
Weekly Top Themes
1. The July jobs report headlines were disappointing, but underlying details were more positive. New jobs totaled a less-than-expected 157,000, but the data also showed upward revisions in June and May jobs growth, and a decline in the U-6 unemployment rate from 7.8 percent to 7.5 percent as more people entered the workforce.2 In total, we think the data show the economy is continuing to expand at an above-trend pace.
2. We expect two more Federal Reserve rate hikes this year. At last week’s policy meeting, the Fed pointed to economic strength, highlighted higher inflation and cited strong labor market conditions. Unless conditions change, we expect hikes at the September and December meetings.
3. Increased productivity levels could extend the economic expansion. U.S. productivity has grown from 0.7 percent in 2016 to 1.5 percent today, helping to put downward pressure on inflation while also boosting growth.2
4. Some forecasts suggest the economic expansion still has a long way to go. JPMorgan Chase CEO Jamie Dimon recently commented that the expansion is only in the “sixth inning,” which is consistent with ISI Evercore’s recession model that shows the next recession is still years away.3
5. U.S. corporate profits are diverging. Non-U.S. profits from domestic companies are threatened by the strength of the dollar and tariff policies. Domestic profits, however, look to be on a positive track given accelerating economic growth.