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US stocks ended last week at new highs, as investors are now more confident about the new stimulus measures adopted by the big central banks at the head of the Federal Reserve. Fed Chairman Jerome Powell dispelled all doubts during his semiannual testimony to Congress, as he gave more weight to weakening global growth prospects and continued weakness in the US. inflation. Markets are no longer wondering if the Fed will lower rates, but how far the central bank will cut.
The shift from tightening to easing has created an environment of "buying everything" from stocks to bonds and even commodities. Expectations of lower rates led to a recession on recession rates in the United States. Many market players have seen a sharp acceleration of the recession, with the gap between the 3-month and 10-year yields rising to -0.03% versus July. The acceleration of the yield curve suggests that the Fed could extend the current economic cycle, but many doubts remain about the deterioration of international trade relations.
This week we will have an overview of the performance of US companies over the past three months. As the big banks start unofficially in the earnings season, it will be interesting to see the impact of falling rates on their margins. However, to have a global view of the performance of the economy, investors must turn their attention into delinquency rates. Whether it's credit cards, car loans or business loans, if the unpaid rates accelerate further compared to the first quarter, it will send a sell signal to bank shares.
Overall, markets expect the S & P 500 to post a 3% decline in earnings for the second quarter. However, if companies continue to exceed estimates by more than 4%, it is highly likely that we will avoid a revenue recession. This fact, along with expectations of easing monetary policy, will likely keep the party on the rise, despite rising valuations.
Today, China has announced its slowest quarterly economic expansion rate for nearly three decades. The economy grew 6.2% in the second quarter, in line with market expectations, but 0.2% below the first quarter. Policymakers are likely to defend growth rates of 6% in the second half of 2019 by stepping up stimulus, whether in the form of fiscal or monetary measures. On the positive side, industrial production grew 6.3% in June and retail sales far exceeded market expectations at 9.8%. It remains to be seen whether this trend will continue, but so far the data clearly show that China is not headed for a hard landing.
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