Need to Know: As the S&P 500 bumps up against 3,000, Wells Fargo says cash in on gains

The Federal Reserve seems to have successfully walked a tightrope of market expectations on monetary policy, and investors are cheering — at least for now.

The S&P 500 is on the verge of fresh highs Thursday following a dovish Fed meeting that has helped to heighten chances of a July interest rate cut. That is even amid some concerns that the picture for equities may dim down the road.

“It makes sense for stocks to advance in an environment of lower expected interest rates, but what would be important for investors to also ponder is whether this is a sign of an economy that can’t sustain its growth rate anymore,” said Konstantinos Anthis, head of research at ADSS.

Read: What the Fed’s latest move means for investors

That leads us to our call of the day, from Tracie McMillion, head of global asset allocation strategy for Wells Fargo Investment Institute who believes U.S. equities have seen all the gains they are going to get this year, and has been urging her clients to pare back a little.

“We think a lot of positives are priced in. There are two (U.S.) interest rate cuts priced in to the market. We think there will be one,” she told MarketWatch in an interview.

McMillion argues that while investors may be counting on more fuel for equities from a likely trade deal between the U.S. and China, a resumption of tariff pressure over Mexico and the European Union in the fall could tug on the other side. As well, the U.S. government will be confronted with an autumn deadline over the U.S. debt ceiling.

“We’re expecting all of those things could inject additional volatility, which is why we’re advising clients to buy when we’re under 2,800 (on the S&P) and pare back when we’re over,” says McMillion.

But when those pullbacks come, she says they prefer to shop for U.S. companies with higher quality earnings and lower debt, that are cyclical and sell items consumers can afford in a booming economy. Information technology, industrials and financials are some of the sectors on her list.

She’s also been urging clients to take a good look at emerging-market equities, which are looking like a better bargain. As this chart from Wells Fargo shows, a valuation indicator based on stock prices relative to operating cash-flow per share is showing a hefty discount for emerging-market equities versus U.S. large-caps:

The markets

Dow YMU19, +0.88% S&P ESU19, +0.97%  and Nasdaq-100 COMP, +0.42%  futures are solidly up. Oil CLN19, +3.24% is higher, while the dollar DXY, -0.52%  is down versus big rivals, notably against the Norwegian krone USDNOK, -1.7531%  after that central bank hiked interest rates. The Bank of Japan left rates unchanged as did the Bank of England.

Europe stocks SXXP, +0.55% are up, and the Shanghai Composite SHCOMP, +2.38% led Asia higher with a 2.4% gain.

The chart

Pushing to a five-year high Thursday, gold GCQ19, +3.00% has earned a spot as our chart of the day. The move comes as the yield on the 10-year U.S. Treasury TMUBMUSD10Y, -0.72%  is hovering at 2%, a level not seen since 2016 after the Fed hinted of lower interest rates. Nonyielding gold moves inversely to bond yields.

According to this tweet from Joel Kruger, currency strategist at LMAX Exchange, those gains can only get bigger.

The buzz

Iran says it shot down a U.S. drone in its airspace, which may not do much for those tensions between Tehran and Washington. That is just one thing helping oil.

Business-chat company Slack WORK, +0.00%  is going public in New York Thursday without an IPO, with shares due to start trading at $26 a share. Here’s what you should know.

Deutsche Bank DB, +1.27% DBK, -1.53%  shares are down amid reports of an FBI probe over money-laundering accusations that may involve the family business of Trump’s son-in-law.

Here’s why Bond king Jeffrey Gundlach thinks Trump could pull out of the 2020 presidential race.

Fed Chairman Powell said Wednesday that he’ll serve out his four-year term even as President Trump has criticized him over too-tight monetary policy. Citing sources, Bloomberg said Trump believes he can demote or replace him, though there is no plan for that yet.

Random reads

Former VP and presidential candidate Joe Biden says not sorry over segregationist comments.

Chinese President Xi Jinping’s historic visit to North Korea is under way

Russians gear up for the annual Q&A with President Vladimir Putin

Women are putting in longer hours at home and on the job, a not-so-shocking survey reveals

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