The week that was…
The indexes have been in a near standstill for well over a month as August played out to form of being a quiet, vacation filled month, and last week was not much different as most market participants seemed to sit on their hands waiting for Friday’s Jackson Hole speech from Janet Yellen. There was a bit of a breakout attempt on Tuesday but that fell flat on its face as indexes closed on their lows. Yellen struck a slightly hawkish tone that was initially tolerated by the “easy money forever” crowd, but then Fed Vice Chair Stanley Fischer also spoke hawkishly and the market reacted poorly.
“In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal-funds rate has strengthened in recent months,” said Yellen.
Following Yellen’s speech, prices for fed funds futures implied investors see roughly a 60% chance of a December hike, up from just above 50% on Thursday. Investors see chances of a September hike at 36%, up from 21%.
The market showed its first few days of SOME volatility on Thursday and Friday as the S&P had recorded something like 32 consecutive trading sessions without a 1% move up or down on a closing basis by mid week.
Economic news was mostly ignored.
Here is a nice 5 day “intraday” chart of the S&P 500 via Doug Short showing the gap up Tuesday and negative action from there, aside from the Friday morning pop. Obviously losses were minor in sum.
Fun fact: The robots are STILL coming (for your job).
Last week analysts at Morgan Stanley, using data from an Oxford University study, predicted that nearly half of U.S. jobs will be replaced by robots over the next two decades.
The week ahead…
The first week of the month always brings the most watched economic data with items such as ISM manufacturing and non manufacturing, and the monthly employment data out Friday pre-market. The August jobs report is expected to show the U.S. economy created 180,000 jobs after rising by 255,000 in July, according to a Reuters poll; the unemployment rate is expected to tick down to 4.8% from 4.9%. In an ironic twist, the market won’t like a strong jobs number as it gives the Fed the green light to raise rates again in our lifetime. While it is incredibly doubtful the Fed would raise rates ahead of an election, December does finally seem to be on the table. So if it happens it would have been a year in between rate hikes.
“Investors should stop looking at every word that comes out of the Fed,” said Karyn Cavanaugh, market strategist at Voya Investment Management. “A September rate hike won’t happen, regardless of what anyone says.”
Short term: We are waiting to see which way this wedge in the S&P 500 resolves – up or down. The index also closed below its 20 day moving average for the first time Wednesday since July; a loss of some short term momentum. The NASDAQ pulled back below all time highs as well.
The NYSE McClellan Oscillator has been in the red for a long time now – while the indexes have not broken down, we want to see this indicator confirming the index charts; instead it has been in opposition.
Long term: Bulls remain in total control.
Charts of interest:
The yield on 10 year bonds thrust upward over 1.60% Friday.
We noted this week that the 2 highest momentum stocks in the market the past month or so, Acacia Communication (ACIA) and Twilio (TWLA) both broke their 10 day moving average – which for a normal stock means little but for these rocket ships shows some loss of momentum. So these could be canaries in the coal mine… or it could have been a resting stop. We’ll have your answer in a few weeks when we look back!
Google (GOOG) is in a nice little downtrend; often when we get this type of chart and a stock breaks out of it to the upside (of course the market not selling off helps) you can get a nice little trade out of it for the short term folks.
Mylan was in the news due to its Epipen price increases and it weighed on the general healthcare sector. The biotech ETF had broke above May highs for a few weeks, but now is back below that level.
Let us know if you enjoy this version of our recaps! Over and out.