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3 Things Under the Radar This Week

Investing.com - Here’s a look at three things that were under the radar this past week.

1. Stock Market Setting Itself up for Disappointment?

With just 11 days to go until the Federal Reserve kicks off its two-day meeting, fears are running high that the central bank may not deliver the half-percentage-point rate cut that many deem necessary to keep the market rally alive.

And for good reason.

The U.S. consumer, the engine of the economy, remains solid, showing little willingness to rein in spending thanks to record low unemployment.

Manufacturing, an area of economy that has been upended by the U.S.-China trade war, sprung a surprise result as the Philly Fed, a gauge of manufacturing activity, hit its highest level in a year.

The pace of inflation, which has eluded the Fed’s 2% target, showed some signs of life, as long-term inflation expectations rebounded in June, University of Michigan data showed Friday.

Against this seemingly solid economic backdrop, many fear that the market could be setting itself up for disappointment if the Fed fails to engage in aggressive easing.

Goldman Sachs recently estimated that if the Fed does not deliver the four rate cuts expected by the market, financial conditions could tighten and that could cost the stock market a 7% drop.

Expectations for an aggressive rate cut were dealt a further blow late in the week as St. Louis Federal Reserve President James Bullard said that a quarter-percentage-point cut, rather than a half-percentage-point cut, would be appropriate this month.

A glimpse of what may come should the Fed fail to deliver played out in markets this week. Stocks fell late Friday on a Wall Street Journal report that a cut of 25 basis points is now what the FOMC is signalling.

2. Newly Public Player Helps Pet Care ETF PAWZ

Pet supplies delivery company Chewy Inc (NYSE:CHWY) reported its first quarterly results since its initial public offering this week.

While the company is still losing money, investors were encouraged as revenue came in about in line with forecasts at $1.1 billion and its net loss narrowed to $29.6 million from $59.8 million in the year-ago period.

There was also an ancillary benefit for some investors as Chewy helped the ProShares Pet Care ETF (NYSE:PAWZ), which is sitting just a little below its 52-week high.

Chewy is the fourth-largest holding in the ETF, ranked by market value. Other significant names in the fund include Idexx Laboratories (NASDAQ:IDXX), Covetrus (NASDAQ:CVET) and Pets at Home Group (LON:PETSP). A little more than 59% of the fund’s holding are based in the U.S., with the U.K. second at about 19%.

The fund began trading in November 2018. Year to date it’s up 17.6% based on net asset value and up 18.1% based on market price.

ProShares notes that trends in pet ownership look beneficial to the sector in the years to come.

“Baby boomers the largest generation in history, are entering a new phase of life as empty nesters and retirees,” ProShares said.

Ten years ago 34% of those over 70 had pets, but as baby boomers retired that percentage rose to 40%, it said.

Millennials are also embracing pet ownership until, or in some cases instead of, having children, ProShares added.

“And for those who don’t have a pet, 43% say they want one in the future.”

3. Value Making a Comeback?

Value stocks have been underperforming growth stocks, but a rotation in leadership looks to be on the cards for the second half of the year, according to analysts at JPMorgan Chase.

Global value stocks look “extremely cheap” compared to global growth stocks, analysts said in a note this week.

“For the sustained reversal of value underperformance one needs to see bottoming out in bond yields and in PMIs, in our view,” JPMorgan said. “It is encouraging that U.S. 10-year bond yield is holding above 2% and that US labor market dataflow is resilient, especially the jobless claims.”

“The falling bond yields have weighed on the performance of value, however we note that a sizeable gap has opened up between the level of yields and the relative performance of value in the past two years,” it added.

Analysts are predicting equities to rose 15% in the second half of the year.

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