Over the weekend, Trump (despite having campaigned noisily just last year on a platform of US non-intervention in global military entanglements) ordered direct airstrikes on Iran which he claimed had “obliterated” the country’s nuclear capabilities (intelligence reports later cast doubt on this assertion). He also floated the idea of Iranian regime change (“MIGA”? Really?).
Unsurprisingly, oil prices initially roared higher overnight on Monday and Asian and European stocks dipped lower. Frantically trying to game out the next moves on the global chess board and their impact on stock, bond, currency and oil markets, but also very conscious that selling stocks in response to any geopolitical crises has always burned them in the past, Wall Street traders kept the indexes in the green when the New York session began.
The early gains were only briefly interrupted when news broke of the inevitable Iranian response in the form of largely symbolic and ineffective missile launches at US bases in Qatar and Iraq. The sheer impotence of these reprisals was quickly interpreted as a sign of de-escalation and a market positive. The indexes resumed their climb, closing at the highs of the day, oil prices utterly collapsed and interest rates dropped.
Being as markets were essentially right where they were before Israel first launched its attack, you’d have thought that the announcement of the fragile-looking ceasefire that we got on Monday night wouldn’t move the needle much.
But this is a relentless stock market that really, really wants to head north and is looking for any excuse to move back to within striking distance of all-time record highs and that’s exactly what it did on Tuesday morning, spurred on by the continuing oil price wipeout which basically erased all of the big gains generated over the course of the twelve days of conflict.
While Trump acted out like a frustrated schoolteacher trying to deal with two unruly kids in the form of Israel and Iran, the stock market appeared to be moving on from the whole episode and began to re-focus on things like consumer sentiment readings and Fed chairman Powell’s testimony before Congress. The indexes ended the session solidly higher again with the NASDAQ-100 closing at a new all-time record high.
Stocks took a breather on a relatively drama-free Wednesday with Powell continuing to run rings round lawmakers in Congress without breaking a sweat in response to their mostly dopey grandstanding questions. The NASDAQ tiptoed a little deeper into its record high territory but the S&P 500 flatlined for the entire session.
A pre-market economic data dump on Thursday proved mixed with Weekly Jobless Claims lower than expected and Durable Goods sales higher than expected, but the third and final estimate of Q1 Gross Domestic Product (GDP) confirmed a shrinking economy.
The upward march in stock prices resumed. The market-driven probabilities of a Fed rate cut at the next meeting on July 30th moved up slightly from “not a chance in hell” to “very unlikely” and the number of expected further 0.25% cuts in 2025 moved up from two to three (see FEDWATCH INTEREST RATE TOOL below) as market interest rates continued to sink, pushing bond prices higher.
Nvidia reclaimed its position as the world’s most valuable company by market capitalization (it’s worth close to the GDP of Japan) after a 64% rocket ride in the stock price since the April lows and its hefty weighting in the index helped push the S&P 500 to within a hair’s breadth of joining the NASDAQ in closing at a new all-time record high.
The inevitable new closing record in the S&P 500 was finally achieved on Friday following upbeat global trade appraisals from Lutnick and Bessent, although there was a brief wobble in the afternoon when Trump announced that the US/Canada trade talks appeared to have gone off the rails.
In the short term, three key dates are looming upon which markets will be laser-focused ..
July 4th: the self-imposed deadline for Congress to pass the 940-page tax and spending bill and get it onto Trump’s desk. There’s still a lot of work to do here and the final outcome is unclear.
July 9th: the expiry of the 90-day pause to the April 2nd “Liberation Day” and other sector-specific tariffs. Are we looking at an extension to the reprieve across the board? Some country and/or sector-specific extensions but impositions elsewhere? Trump turns tariffs on and off like a light switch so here, too, the outcome is highly unpredictable.
July 15th: Q2 earnings season gets under way in earnest.
But, put bluntly, what these new all-time record highs mean for long term investors is ..
Every single decision you have made in the past to sell (or to hold off/pull back on buying) ETFs or mutual funds representing the S&P 500 and/or the NASDAQ indexes in a direct response to fears about market conditions (aka market timing) was a bad decision.
It’s sooooo important that anyone investing for multi-decade time horizons understands this and acts accordingly by tuning out the market noise and just continually buying broad market diversified funds to the extent that they can.
If you are not yet a client of Anglia Advisors and would like to explore becoming one, please feel free to reach out to arrange a complimentary no-obligation discovery call with me.
ARTICLE OF THE WEEK ..
“If you sell during a bear market, do you really lose 20%? For many long-term investors, there’s a case to be made that the answer is no.”
Reframing how we think about falling markets.
.. AND I QUOTE ..
“The investor’s chief problem - and even his worst enemy - is likely to be himself.”
Benjamin Graham, “The Intelligent Investor” (1949)
LAST WEEK BY THE NUMBERS:
Last week’s market color courtesy of finviz.com
Last week’s best performing US sector: Communication Services (two biggest holdings: Google, Meta) ⬆︎ 4.7% for the week
Last week’s worst performing US sector: Energy (two biggest holdings: Exxon-Mobil, Chevron) ⬇︎ 4.5% for the week
SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest US companies. Its price rose 3.2% last week, is up 4.2% so far this year and ended the week at its all-time record closing high.
IWM, the Russell 2000 Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest US stocks. Its price rose 2.8% last week, is down 2.6% so far this year and ended the week 11.2% below its all-time record closing high (11/08/2021).
INTEREST RATES:
FED FUNDS * ⬌ 4.33% (unchanged)
PRIME RATE ** ⬌ 7.50% (unchanged)
3 MONTH TREASURY ⬌ 4.39% (4.39% a week ago)
2 YEAR TREASURY ⬇︎ 3.73% (3.90% a week ago)
5 YEAR TREASURY ⬇︎ 3.83% (3.96% a week ago)
10 YEAR TREASURY *** ⬇︎ 4.29% (4.38% a week ago)
20 YEAR TREASURY ⬇︎ 4.85% (4.90% a week ago)
30 YEAR TREASURY ⬇︎ 4.85% (4.89% a week ago)
Treasury data courtesy of ustreasuryyieldcurve.com as of the market close on Friday.
* Decided upon by the Federal Reserve. Used as a basis for interbank loans and for determining high yield savings rates.
** Wall Street Journal Prime rate. Used as a basis for determining many consumer loan rates such as credit cards, personal loans, home equity, securities-based lending and auto loans.
*** Used as a basis for determining mortgage rates.
AVERAGE 30-YEAR FIXED MORTGAGE RATE:
⬇︎ 6.77%
One week ago: 6.81%, one month ago: 6.88%, one year ago: 6.86%
Data courtesy of: FRED Economic Data, St. Louis Fed as of last Thursday.
FEDWATCH INTEREST RATE TOOL:
Where will the Fed Funds interest rate be after the next rate-setting meeting on July 30th?
Unchanged from now .. ⬇︎ 81% probability (83% a week ago)
0.25% lower than now .. ⬆︎ 19% probability (17% a week ago)
What is the most commonly-expected number of remaining 0.25% Fed Funds interest rate cuts in 2025?
⬆︎ 3 (one more than a week ago)
All data based on the Fed Funds interest rate (currently 4.33%). Calculated from Federal Funds futures prices as of the market close on Friday. Data courtesy of CME FedWatch Tool.
FEAR & GREED INDEX:
“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffet.
The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and safe haven demand.
Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment.
Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded positioning leaves the market potentially vulnerable to a sharp downward reversal at some point.
A “sweet spot” is considered to be in the lower-to-mid “Greed” zone.
Data courtesy of CNN Business as of Friday’s market close.
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