Markets rebound and trade tensions ease as July begins

The threat of further tariffs is diminished in the near term following the much anticipated meeting of President Trump and Chinese President Xi Jinping on Saturday at the Group of 20 (G20) summit in Osaka, Japan, reports Washington Policy Analyst Ed Mills. The pair made commitments to restart trade negotiations, resume certain shipments to Huawei, and for China to purchase a to-be-defined amount of U.S. agricultural products. Mills thinks the immediate market reaction will be positive. However, it’s unclear what the long-term implications may be, and no timeline was set for the next round of talks.

On the domestic front, odds of a downturn have increased in Raymond James Chief Economist Scott Brown’s view, but he still believes a recession isn’t likely within the next 12 months. However, he notes the inverted yield curve does signal an expectation that short-term interest rates will fall. For now, the Federal Open Market Committee has opted to leave short-term interest rates as is after its June policy meeting, as expected. He adds that most Fed officials seem to agree that the case for a rate cut this year has strengthened.

Following the first round of presidential debates by the Democratic candidates, several leading topics emerged – including health care policy, inequity in the tax code, antitrust scrutiny, climate issues and geopolitical challenges – which are likely to make headlines over the next year and potentially impact the market, says Mills. He will be watching for ideological differences between the candidates to gauge the direction of various policy proposals and help assess market risk in the event of a presidential changeover post-2020.

According to Bloomberg, the S&P 500 closed on Friday up 6.9% for the month of June – its best performance since January. The month also ended positively for the Dow Jones Industrial Average (+7.19%), NASDAQ (+7.42%) and the Russell 2000 Index (+6.9%).

Performance reflects price returns as of 10:00 AM ET on July 1, 2019

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