Market Perspective for July 9, 2018

Equities opened the week on a strong note, led by a 1.31-percent Dow Jones Industrial Average rally. Financials, industrials, and energy strongly outperformed. Caterpillar (CAT) gained 4.11 percent and Boeing (BA) 2.17 percent. Tariffs took effect on Friday, but stocks in China, the U.S. and emerging markets have rallied since then.

SPDR S&P Bank (KBE) gained 2.30 percent on Monday. SPDR S&P Regional Banking ETF (KRE) gained 2.08 percent. Long-term interest rates held steady, but the odds of a fourth rate hike in December climbed 6 percent to 58 percent on Monday.

Small business optimism for June and the Job Openings and Labor Turnover Survey (JOLTS) are due on Tuesday. Inflation data for June comes on Wednesday and Thursday with the producer and consumer price indexes. Economists predict both the PPI and CPI rose 0.2 percent. A Federal Reserve measure of inflation indicates the CPI could surprise to the upside. Friday will bring the University of Michigan’s early report on July consumer confidence.

Chinese inflation data is expected on Monday night, with lending and trade data out later in the week. Canada’s central bank meets on Wednesday. Analysts predict the bank will hike its interest rate a quarter point to 1.50 percent.

The 10-year Treasury yield increased slightly on Monday to 2.86 percent. Crude oil climbed above $74 a barrel. The U.S. Dollar Index rallied slightly thanks to a weaker British pound, which fell amid resignations from British Prime Minister Theresa May’s Brexit team and Foreign Secretary on Monday. As of Monday, there was no sign of a leadership challenge from within May’s party. iShares MSCI United Kingdom (EWU) climbed 0.86 percent on the day.

Pepsi (PEP) will kick off second-quarter earnings season on Tuesday. Analysts forecast $1.52 per share in earnings. Delta Air Lines (DAL) will report on Thursday. J.P. Morgan (JPM), Citigroup (C) and Wells Fargo (WFC), along with PNC Financial Services (PNC) will report on Friday. These four banks account for 26 percent of SPDR Financial (XLF).

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