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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Bear territory was reached Friday, signaling a sustained rangebound period. Does it mean something else this time?
Monday S&P 500 0.40% | NASDAQ 1.21%
Markets swung between losses and gains throughout the day. Towards the end of the day, it became decidedly negative, closing out in the red. There was very little economic data to swing the markets one way or the other.
Tuesday S&P 500 2.02% | NASDAQ 2.76%
The jump in markets came on the back of strong retail sales. There was a fear that retail sales would weaken on strong inflation data; however, the consumer remained strong. Capacity utilization also came out yesterday at 79%. The signal tells investors of tighter economic conditions, which lend themselves to inflation when the rate is in the 80’s.
Wednesday S&P 500 4.04% | NASDAQ 4.73%
Equities continued their march lower on Wednesday. The S&P 500 broke through the psychological floor of 4000 points, but that level carries little factual weight. Housing data showed future weakness for new home sales. Additionally, oil inventories fell unexpectedly. Oil markets were up early on the news; however, they faded as the equity sell off gained steam. The main catalyst to the selloff was reports from Walmart, Target, Home Depot, and Lowe’s that detailed consumer buying behaviors. The big box stores indicated that consumer activity has shifted to more conservative buying. To the contrary, the home improvement stores have indicated no such change that consumption is showing strength.
Thursday S&P 500 0.58% | NASDAQ 0.26%
Quite often, following a market sell off, we will see a bounce the following day. Not on Thursday… Equities oscillated between gains and losses throughout the day, ultimately landing slightly lower. The S&P 500 is off approximately 19% from its high. It is inching ever closer to bear market territory (20% fall from recent highs).
Friday S&P 500 0.01% | NASDAQ 0.29%
Markets opened in the green in reaction to lending rates in China being eased. That faded quickly and the S&P 500 pushed down about 1.4%. This brought the index to 20% down from it’s high. Late in the day, markets rallied to end unchanged.
Conclusion S&P 500 3.05% | NASDAQ 3.82%
The S&P 500 fell 20% from their January highs. The significance of this is that a fall of 20% marks a bear market. During recessions, this is a market where rallies will occur (markets hang lower rather than putting in new highs). Bear markets in expansions frequently are short-term swings of losses rather than sustained down periods. At the end of 2018, we hit bear market territory and markets proceeded to rally capturing new highs throughout 2019. This may be a recent point, but it does give us hope that the storm may be almost over.
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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.