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In this market, nearly everything is up. How long can that last?

Posted at 3:31 PM, Jul 21, 2019

1. All boats rising: US stocks, bonds, oil, the dollar, gold … you name the asset, and it’s probably up this year. But how long can theeuphoria last?

In June, Federal Reserve Chairman Jerome Powell indicated the central bank would do whatever necessary to ensure the continued expansion of the US economy. That has trumped worries about a trade war and slowing economic growth.

US stock markets have hit record highs on hopes that the Fed will slash interest rates later this month. A cut would give companies access to cheaper borrowing. The S&P 500 is already up nearly 20% this year, its best start since 1998.

The prospect of central bank stimulus also drove up bond prices, which move in opposition to yields. The United States was at one point paying less than 2% interest on its 10-year government bonds.

The hopes for lower rates also weighed on the US dollar, because currencies tend to weaken when local interest rates decline. That in turn helped gold prices which have climbed some 11% this year. The dollar is still holding onto gains for 2019.

Oil prices have bounced back from last year’s steep decline, climbing more than 21% this year, according to Refinitiv. The move was caused in part by heightened geopolitical tensions, which threatened the oil supply.

Yet there are numerous potential trouble spots that could derail the market momentum.

For one, the US debt ceiling is back in focus after the Treasury Department said the government could run out of cash in September.

On the Fed front, investors worry about the pace of rate cuts this year, and whether they will really bring the desired boost in economic growth.

Economists at Capital Economics predict US economic growth will slow sharply in the second half of 2019, prompting the Fed to cut interest rates by a total of three-quarters of a percentage point. It can however take months for monetary policy actions to feed through to the economy.

Another worry is that the American economy is becoming less resilient to the trade war, as the manufacturing sector bears the brunt of the economic harm, according to James Knightley, chief international economist at ING.

Although the Unites States and China agreed to a tariff truce last month, President Donald Trump has warned that he could up levies on Chinese imports. Uncertainty about trade is weighing on companies’ investments, and that won’t change unless the spat is resolved.

China’s economic growth has meanwhile slumped to its lowest level in nearly three decades. Government stimulus will help support the massive economy, but investors could be unnerved by further weakness.

2. Pound watch: The United Kingdom gets a new prime minister this week, and the stakes couldn’t be higher.

The Conservative Party’s selection of Theresa May’s successor could set the stage for Brexit and hit the pound with a fresh wave of volatility. The currency sank to a two-year low below $1.24 last week.

Frontrunner Boris Johnson has said that he’d be willing to force Brexit on October 31, the latest deadline for Britain to depart the European Union, if he’s unable to negotiate a new exit deal with EU officials.

Leaving the European Union without an agreement would plunge the United Kingdom into recession, according to a report from the UK government’s budget watchdog. UK stock markets would fall 5%, while the pound would plummet 10%. GDP would shrink by 2% by the end of 2020.

Johnson or his opponent Jeremy Hunt will be named leader of the party on Tuesday.

3. Boeing earnings: Boeing is bracing for a disastrous earnings report.

The airplane maker has been hit hard by the grounding of its 737 Max jets. Southwest, American Airlines and United Airlines have all recently extended cancellations of 737 Max flights for several more months.

That will likely hit earnings for Boeing, which will report its second quarter results before the opening bell on Wednesday. Analysts are forecasting a more than 16% drop in sales from a year ago and a nearly 50% plunge in earnings per share.

The company said last week that it will record a nearly $5 billion after-tax charge in the second quarter, citing potential concessions to customers for disruptions and delivery delays.

The question is how much worse it will get. The company suspended its earnings guidance in April after it reported a 21% decline in profits during the first quarter. Boeing also put future plans to buy back more of its own stock on hold until the 737 Max is back in the air.

Boeing’s top rival, Europe’s Airbus, has delivered 150 more jets to airlines than the US planemaker through the first half of the year.

4. FAANG checkup: Investors will check in on Facebook, Google and Amazon one week after they were grilled on Capitol Hill.

Facebook reports earnings for the second quarter on Wednesday. Analysts expect quarterly sales growth to come in at 23%. But significant focus will be on what Facebook has to say about growing scrutiny from regulators.

The company has been under the microscope since announcing the launch of Libra, a cryptocurrency. The Federal Trade Commission has also reportedly approved a $5 billion settlement with the company related to an investigation of its data privacy practices.

Google parent Alphabet follows with earnings on Thursday. Analysts project quarterly revenue of $38.2 billion. That would be a 17% increase from the prior year, a growth rate on par with that in the first quarter but still lower than growth throughout 2018, when revenue soared by over 20% in each quarter.

Google shares have been missing out on a rally enjoyed by the other FAANG stocks. The company’s shares are up almost 10% this year.

Facebook stock, meanwhile, has jumped more than 50%. Shares in Microsoft and Amazon have increased more than 30%.

Amazon also reports results Thursday. Investors will be interested in whether the company’s push for free one-day shipping has lifted sales. They’ll also pay attention to the performance of its highest-earning division: Amazon Web Services.

5. Coming next week:

Monday — Whirlpool earnings
Tuesday — Europe consumer confidence; US existing home sales; Coca-Cola, Harley-Davidson, Kimberly-Clark, Lockheed Martin, Chipotle, Snap, UBS, Visa earnings
Wednesday — German manufacturing data; US new home sales; US crude inventories; Deutsche Bank, AT&T, Boeing, Caterpillar, UPS, Facebook, Ford, PayPal, Tesla earnings
Thursday — European Central Bank rate decision; US durable goods; 3M, American Airlines, Anheuser-Busch InBev, Comcast, Hershey, Nokia, Amazon, Alphabet, Intel, Mattel, Starbucks earnings
Friday — US Q2 GDP; McDonald’s and Twitter earnings