There was an onslaught of data last week, which led to gains. Should more be expected with the coming earnings season?
Monday S&P 500 0.27%| NASDAQ 1.09%
ISM Manufacturing unexpectedly slipped and remains in contractionary territory. The weaker economic data would typically signal lower rates as rate cut expectations would increase. To the contrary, 10-year treasuries rose on the day. In the face of weak economic data, the start of the quarter brought optimism towards the next three months.
Tuesday S&P 500 0.62% | NASDAQ .84%
JOLTs job openings rose more than expected to 8.14M openings. For perspective, there were 6.6M unemployed as of the May report. The strong jobs data did not deter markets, though; this may be because the Federal Reserve Board (FRB) Chair, J. Powell, spoke on the day. He indicated that progress is being made towards their inflation target. This is the ‘secret sauce’ needed to justify future rate cuts.
Wednesday S&P 500 0.51% | NASDAQ 0.88%
Initial jobless claims rose for the week to 238K from 234K; the level remains elevated, albeit from all-time lows. Factory orders unexpectedly slipped into the negative on the month. Additionally, ISM Services unexpectedly slipped into contractionary territory. This is all bad news for economic production, so why did the markets rise? Interest rates fell as this data increases the likelihood that the FRB will lower rates sooner than expected. The heightened odds are now calling for a .25% cut in September and December, according to CME FedWatch.
Thursday S&P 500 -% | NASDAQ -%
Happy Independence Day!
Friday S&P 500 0.54% | NASDAQ 0.90%
Happy Jobs Friday! The unemployment rate rose to 4.1%, Nonfarm payrolls beat expectations, and participation rose to 62.6% from 62.5%, all for June. The unemployment rate went up even though we added 206K jobs??? Participation went up so, with more people in the market, the rate can go up even as jobs are added. This is a positive signal that workers are returning to the work force. The rise on equity markets, however, was on hopes that economic weakness would be enough for an FRB rate cut.
Conclusion S&P 500 1.95% | NASDAQ 3.55%
This was a busy week for economic data, especially for a holiday shortened week. We got weaker Jobs, manufacturing, Services, and Factory orders. The weakness led to stronger markets on hopes the FRB will cut rates BEFORE a recession can materialize. The coming week starts second quarter earnings. Valuations are stretched (S&P 500 P/E: 28.94) and economic production is weak, very little should be expected from this season. This could be the start of volatility that would lead into the Autumn.
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The bears are firmly in control right now. Should it last or is there hope on the horizon?
Monday S&P 500 0.69% | NASDAQ 0.76%
The start of the week was a trading day of uncertainty. Markets ebbed and flowed, finally finding a footing late in the day. Markets ended up rising but not in a convincing fashion given last week’s sell-off. Anticipation is building towards Wednesday’s Federal Reserve Board Press conference.
Tuesday S&P 500 1.13% | NASDAQ 0.95%
Markets opened in the red and stayed in the red all day. The economic data on the day was positive which of course led to a negative market. Housing starts rose by 12% in August. More robust new home data actually signals a stronger buyer than was expected. The concern reinforces the idea that the FRB has to go further than they already have to create demand destruction.
Wednesday S&P 500 1.71% | NASDAQ 1.79%
The FRB delivered a 0.75% rate increase. They have two meetings left for the year and they anticipate 0.75% in November and 0.50% in December. The unemployment and inflation data would have to soften substantially for a milder move.
Thursday S&P 500 0.84% | NASDAQ 1.37%
Markets continued their retreat post the FRB rate hike on Wednesday. Interest rates continued to climb in anticipation of 4.5% by year end. Interest rates and prices move in opposite directions.
Friday S&P 500 1.72% | NASDAQ 1.80%
The fall on Friday was worse than its headline number represents. The S&P closed at 3,693.23, however it reached a low of 3,649.16. This is a break of the support level of 3,666.77, which was the close on June 16th. The fact that markets did not stay below support into the close is not necessarily encouraging. It will likely be surpassed within the next few trading sessions.
Conclusion S&P 500 4.65% | NASDAQ 5.07%
We have been told that this is not a recession given the strength of the consumer. The FRB delivered another blow on Wednesday to the consumer by raising rates to 3.25%, moving into restrictive territory. The move should help to quell demand, but it is not the last. 1.25% is still expected before year end, bringing us to 4.5%. The market’s behavior is telling us that if we are not in a recession, that we will be soon. Our current recessionary behavior is specifically not the depth with which markets have fallen; rather, the bear market rally with a retest of prior lows following. This is a behavior that is typical of recessionary environments. This means that we should see several bear market rallies along the way. It could come from corporate earnings, political transitions in November, or even the vaunted Santa Claus rally. Look for growth, but with subsequent pull backs.
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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.
Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.