Market week: First half: stocks still making gains

Overcoming trade tensions as rates poised to drop

While the main stock indices posted gains for the first half and the second quarter, the week saw markets retreat against the backdrop of the trade summit on Friday evening (Eastern time) between U.S. President Donald Trump and China’s Premier Xi Xinping at the G-20 meeting in Japan. Investor expectations about progress in the trade and tariff dispute between the two countries remain subdued, as the U.S. continues to threaten still more tariffs on Chinese imports, while China insists on a removal of tariffs and sanctions on companies like Huawei.

The S&P 500 Composite Index dropped nearly 0.3% on the week, but gained 6.9% in June and advanced 3.8% in the second quarter for a first-half gain of 17.3%. The Nasdaq Composite Index likewise fell 0.3% over the week, but rose 7.4% in June overall, with a strong first-half gain of 20.7%.

In the meantime, U.S. consumer spending and personal income rose in May, up 0.4% and 0.5% month over month, respectively. And the University of Michigan’s consumer confidence index came in at 98.2 for June, while the U.S. PCE Index, the Federal Reserve Board’s preferred inflation measure, fell to an annual rate of 1.5% in May from 1.6% in April. That strengthens the Fed’s more dovish monetary policy stance of recent months and strengthens the argument for a rate cut later this year.

In Canada, meanwhile, gross domestic product grew at an annual rate of 1.5% in April, still below the Bank of Canada’s estimate of the economy’s potential. Along with core inflation at about 2%, which is within the Bank of Canada’s target, the softer GDP numbers give the BoC little cause to move interest rates from their current level. Toronto’s main stock market gauge, the S&P/TSX Composite Index, lost nearly 1% on the week, while posting an 2.2% gain in June and a 1.7% advance in the second quarter overall, weighed on by a 3.6% decline in the price of crude oil in the quarter. Overall, the index posted a respectable first-half gain of 14.4%.

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