Week in Review: Terrorism in France Breaks Wall Street Winning Streak
Devastating news of another terrorist attack in France Thursday night soured an otherwise-celebratory mood on Wall Street.
The S&P 500 closed out four straight days of record closes before snapping its streak on Friday. Since Monday, the S&P 500 added 1.49%, the Dow Jones Industrial Average gained 2.04%, and the Nasdaq rose 1.47%.
At least 84 people were killed Thursday in Nice, France, after a heavy truck tore through crowds celebrating Bastille Day. The attacker was shot dead by officers after engaging in gunfire. French President Francois Hollande called the attack terrorism and has called for three days of mourning beginning on Saturday.
Before Friday, stocks had enjoyed five straight days of gains, beginning last week after a better-than-expected U.S. jobs report for June brought relief over the state of the U.S. economy. A dismal May reading had triggered fears over growth.
"Stock prices continue to grind higher on quiet trading as news items and data points have been positive for investors, Jim Davis, regional investment manager for the Private Client Group of U.S. Bank, told TheStreet. "Central bank policy has given investors the green light for buying -- foreign central banks are pursuing accommodative policies; there are signs of fiscal policy coordination in Japan, and investors are discounting the odds of (Federal Reserve) action."
The Bank of England held steady on its 375-billion-pound asset purchase program on Thursday, though suggested it might be ready to increase stimulus next month. Global traders had expected members to decide upon a rate cut for the first time since 2009.
"In the absence of a further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis, most members of the Committee expect monetary policy to be loosened in August," the central bank said in a statement.
Investors are also speculating that the Bank of Japan could implement another source of stimulus in a strategy called helicopter money, wherein the central bank would directly fund government spending. The BOJ already purchases government bonds as a means of monetary stimulus. Its quantitative and qualitative easing program has been in place since 2013.
The Fed, meanwhile, is unlikely to make a move to tighten its own monetary policy until the end of the year. Atlanta Fed President Dennis Lockhart and Cleveland Fed President Loretta Mester pointed to the United Kingdom's decision to exit the European Union in June as reason to pause in separate speeches this week.
"I do not think U.S. monetary policy is behind the curve yet" so it was right for the Fed to hold rates steady in June, Mester said in a speech on the economic outlook at the Australian Business Economists Luncheon in Sydney. "I expect we will be living with uncertainty for a while as the U.K. and Europe establish the terms of their new relationship."
A rate hike from the Fed in December, the meeting with the highest likelihood, now has a probability of 40%, according to CME Group Fed funds futures. The chances of a rate hike in July are virtually non-existent.
Activity in the 12 Fed districts grew at a "modest pace," according to the latest "Beige Book" released on Wednesday. The anecdotal reading on economic conditions throughout the country reported "modest to moderate" wage pressures. Manufacturing activity also "generally improved" after a rough start to the year. The release covered information collected over the six weeks from mid-May to the end of June.
Alcoa (AA) - Get Report kicked off the second-quarter earnings season on Monday afternoon with profit and revenue coming in above estimates. Big banks dominated the earnings calendar for the rest of the week with JPMorgan (JPM) - Get Report , Citigroup (C) - Get Report , and U.S. Bancorp (USB) - Get Report topping estimates, while Wells Fargo (WFC) - Get Report reported an in-line quarter.
Crude oil prices ended the week just over 1% higher after five days of big swings in both directions. U.S. production appears to be reversing a recent downward trend with weekly data on active oil rigs showing another increase for the sixth time in seven weeks, while a read on crude inventories showed a far-smaller decrease than expected.
The International Energy Agency warned in its monthly report that ballooning inventories could threaten the "recent stability of prices." Output in the Middle East has risen, while production in the U.S. has shrunk, creating a short-term balance in supply.
A separate report from the Organization of the Petroleum Exporting Countries forecast an increase in demand and a decline in production in 2017. The group, which accounts for around a third of the world's supply, expects demand for its crude to increase to 33 million barrels a day next year.
Economic data generally came in positive over the past week, supporting the picture of a U.S. economic recovery still intact. U.S. retail sales increased in June as consumers showed more confidence in spending than saving. Sales at stores such as Home Depot (HD) - Get Report enjoyed their largest monthly gain in six years.
Industrial output in June rose at its fastest pace in nearly a year as the headwinds of a stronger U.S. dollar and weaker international demand began to fade. Gains in auto and utility output drove the headline number higher.
"Economic growth is slow but steady and supports our belief that the fundamental backdrop is supportive of equities," added Davis. "Recent data shows consumer spending may be improving, the labor market is healthy and the manufacturing sector is stabilizing. Moreover, data flows suggest that money is going into equities from less risky asset classes."