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After The Close - Stocks edged higher on Monday on hopes that the Federal Reserve will soon lower interest rates. At the close, the Dow Jones Industrial Average was up 23 points; the S&P was in the plus column by a few points; and the NASDAQ gained a firm 48 points. Small-capitalization stocks had a good session, too.

The Federal Reserve begins a two-day policy session on Tuesday, after which there is an outside chance that it will announce an interest-rate reduction. Even if the Fed does not act this week, the thinking is that monetary policy might well be loosened by July.

Recent economic data has been underwhelming, for the most part, leading to the belief that a rate cut is needed to stimulate commercial and consumer activity.  

In fact, this morning’s release of the Federal Reserve’s survey of business conditions in the New York region was uniformly weak. The survey showed its first decline into negative territory in more than two years. Manufacturing has been under pressure as auto sales have slowed, and as overseas demand has eased.

Bond market action following the poor economic data confirmed the view that lower interest rates are thought to be on the way. The yield on the benchmark 10-year Treasury note settled at a slim 2.08%, not far from the year’s lows.

With yields on six-month Treasury bills at 2.20%, or greater than the 10-year note, the yield curve is inverted, signaling a good chance that a business slowdown is at hand and that the Federal Reserve will need to lower short-term rates before long.

In other markets, oil prices fell as inventories in the United States remain adequate and as projections for global demand growth have been downwardly revised. The price of a barrel for the domestic benchmark of crude oil dropped about $0.75, to around $51.75, in New York trading.

Among individual stocks, shares of auctioneer Sotheby’s (BID) soared on news that the company is being taken private at a premium.

Tomorrow brings a report on housing starts and building permits for May, which is not expected to show a major upturn. Still, the housing market could start to pick up steam if lower mortgage rates fuel sales.

More broadly, stocks may be in a holding pattern until the Federal Reserve announces its interest-rate policy decision on Wednesday.  - Robert Mitkowski

At the time of this writing, the author did not have positions in any of the companies mentioned.

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Before The Bell - The most recent five-day stretch of trading on Wall Street could be best termed a choppy one. Both the bulls and the bears made cases, with neither holding much of an upper hand at any time. The buying and selling was quite contained throughout the entire week, with the major averages never straying too far from the neutral line. There were both some positive and negative developments and events that acted as counterbalances during the week. When all was said and done, the Dow Jones Industrial Average, the broader S&P 500 Index, the tech-heavy NASDAQ Composite, and the small-cap Russell 2000 finished the uneven week with respective gains of 0.4%, 0.5%, 0.7%, and 0.5%.

Last week the bears reacted to the continued stalemate between the United States and China in reaching a new trade deal, the attacks on oil carriers in the Middle East (which the United States said were carried by the Islamic Republic of Iran), and protests in Hong Kong. That negativity was offset by growing sentiment that the Federal Reserve may cut interest rates later this year, as possibly as early as next month, in an effort to support the U.S. economy and some favorable data from the business beat, including benign readings on inflation, a jump in May retail sales (and the April figure was revised from a decrease to an increase), and better-than-expected industrial production figures.

On Friday, the week’s final trading session went to the bears, with the Dow 30, NASDAQ, and the S&P 500 Index falling 17, 40, and five points, respectively. The biggest laggard among the 10 major equity groups was the technology sector, which has hurt by a weak performance from the chipmakers. That group fell after industry heavyweight Broadcom (AVGO) cut its annual sales forecast Thursday afternoon, citing weaker order demand due to the U.S./China trade war. The company now sees revenue of $22.5 billion in the 2019 fiscal year, versus the $24.5 billion guidance it provided three months ago. Likewise, the economic sensitive basic materials, energy, and industrial sectors finished in the red. Overall, declining issues led advancers by a comfortable margin on both the New York Stock Exchange and the NASDAQ, to the tune of nearly two to one on the latter.

ooking ahead to the new week, we think that many of the variables that drove trading last week will be in play again. The U.S./China trade war remains front and center on the minds of investors, with eyes focused on the possible meeting between President Trump and China’s President Xi Jinping at the G20 summit later this month. The investment community also will be fixated on the Federal Reserve’s two-day FOMC meeting on monetary policy that commences tomorrow morning. Sentiment that the central bank will take a dovish stance over the remainder of 2019 has provided support for equities and offset the ill tidings about trade. We would not be surprised if trading remained rather subdued ahead of Wednesday’s afternoon monetary policy statement (due at 2:00 P.M. EDT). The Fed’s commentary on future monetary policy also may have an impact on trading later this week. In addition to the Fed news, we will get data on housing starts and existing home sales. It will be interesting to see if the lower borrowing costs of late had a positive impact on the housing market and the homebuilding sector during the all-important spring selling season.

With less than an hour to go before the commencement of trading stateside, the equity futures are presaging a modestly higher opening for the U.S. stock market. Overseas, the main indexes in Asia finished mixed overnight, while the major European bourses are slightly in positive territory as trading moves into the second half of the session on the Continent. As noted above, barring any unforeseen breakthrough on the trade front, we would not be surprised if the major indexes traded in a tight band ahead of the FOMC statement on Wednesday afternoon. The prevailing sentiment is that the Fed will hold rates steady this week, but may look to loosen the monetary reins next month if the stalemate on trade continues into July. Stay tuned. – William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.