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Weekly Update

Market Summary

Stocks closed out a strong June, buoyed by gains from  bank stocks after most raised their dividend payouts and share repurchases. The S&P 500 was up 6.9% for the month, marking its best June performance since 1955.  Through June 2019, the S&P has increased 17.4%, its best first half since 1997.

However, a series of Fed comments reduced hopes of a July rate cut.  Federal Reserve Chair Powell stated that the central bank was "insulated from short-term political pressures", while St. Louis Fed President  Bullard spoke and noted that a 50 basis point rate cut in July would likely be "overdone" given the underlying strength of the U.S. economy. Traders are now pricing in a 100% chance of a July cut  and a 70% chance of the potential of two cuts between now and year end.

A U.S.- China truce was brokered in Japan during discussions between President Trump and President Xi Jinping of China, at the Group of 20 summit meeting this weekend.  The President agreed to delay 25% tariffs on $300 billion of Chinese goods, in return for Mr. Xi promising to buy more American products. In reality, little has changed for now. Existing tariffs on Chinese goods remain in place, and Beijing won't overhaul its economic model of subsidizing state-owned enterprises.

What caught the eye of the markets was Huawei being partly permitted to purchase US parts and continue to do business here in the U.S.  If the ban were lifted entirely, it would cement Huawei's role as one of the largest competitive threats to the U.S. role in the next generation wireless technology known as 5G.  As noted by the WSJ.com, "No American company makes the devices that transmit high-speed wireless signals. Huawei is the clear leader in the field; the Swedish company Ericsson is a distant second; and the Finnish company Nokia is third."

In a quickly arranged meeting in the demilitarized zone of North and South Korea,  President Trump and Kim Jong Un agreed to restart talks over demilitarization. They agreed to designate negotiating teams that will begin work over the next several weeks.

Boris Johnson, the frontrunner to be the U.K.'s next prime minister, hardened his Brexit comments with a "do or die" pledge to leave the EU on Oct. 31. He also said he would discard Theresa May's withdrawal agreement and seek a new deal , as minor changes would not satisfy him. The European Union has stated it will not reopen the withdrawal agreement.

Mergers and Acquisitions increased strongly in the first half of the year. It was the third strongest first half on record. The total value of global transactions increased 15% from the final six months of 2018, to about $2 trillion, according to data from FactSet.  Megamergers, which are valued at $10 billion or more, accounted for over 40% of the total with Health Care being the busiest sector.

US Economy – The Week Ahead

Tuesday, 7/2/2019

  • No data

Wednesday, 7/3/2019

  • Initial Jobless Claims - Consensus Estimate: 220,000 (-3.1% WoW), Prior Week: 227,000 (4.6% WoW)
  • ADP Employment Survey - Consensus Estimate: 140,000, Prior Month 27,000
  • ISM Non-Manufacturing PMI - Consensus Estimate: 55.8 (-1.9% MoM), Prior Month: 56.9 (2.5% MoM)

Thursday, 7/4/2019

  • Markets Closed - Fourth of July

Friday, 7/5/2019

  • Hourly Earnings Growth Year-over-Year - Consensus Estimate: 3.2%, Prior Month: 3.1%

  • U.S. Unemployment Rate - Consensus Estimate: 3.6%, Prior Month: 3.6%

  • Nonfarm Payrolls Added - Consensus Estimate: 165,000, Prior Month: 75,000

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