Some volatility was reintroduced to the market this past week as <0.80% moves on the S&P 500 (and even larger moves on the NASDAQ) happened Tue, Wed, and Thu. This is certainly a welcome change from a trading (and writing perspective) from the relatively monotone move upward almost all of 2017! Losses Tuesday accelerated after Republican Senate leaders postponed a vote on the health-care bill that would replace Obamacare until after the July 4 holiday. This was less about health care and more about the tax breaks that the market has anticipated the Trump administration pushing through.
Wall Street has generally risen since President Donald Trump’s election in November, in large part due to hopes that his economic agenda—including massive tax cuts and deregulation—would accelerate economic growth. However, his administration has seen few legislative successes, raising questions about whether the broader market’s valuations are justified if the thesis that drove them higher fails to come to fruition.
“The week may have a lot to say about the success of the Trump administration’s proposed legislative agenda, and the market’s reaction to it,” said David Joy, chief market strategist at Ameriprise Financial. “While the delivery of health care is of vital social importance, for investors the more important legislative initiative remains tax reform. But to get there, the administration must work through health care first so that its impact on the budget can be determined.”
Yellen’s speech on Tuesday was a big nothingburger.
Fed Chairwoman Janet Yellen told an audience in London that asset valuations are “somewhat rich,” while San Francisco Fed President John Williams told an Australian television station that the stock market is running on “fumes.” Yellen also said that another financial crisis wasn’t likely to happen in “this lifetime.”
With the close Friday also being on June 30th we have a nice clean half year mark. For the quarter the S&P 500 gained 2.6%, and for the first half of the year 8.2%. The NASDAQ gained 3.9% for the quarter and 14.1% for the first half of the year; the best first half of a year since 2009.
“When the 500’s first-half price gain was between 7% and 12%…the market went on to record an average price rise of 5.1% during the second half and posted a positive performance an above-average 87% of the time,” wrote Sam Stovall, chief investment strategist at CFRA, a market research firm.
We keep reiterating what a strange and rare market this has been – more figures to bear it out:
The market’s biggest peak-to-trough drawdown thus far this year was 2.8%, the lowest since 1995.
FANG is now FAAMG (Netflix is taking a rest this year):
In the first half of the year Facebook (FB) gained 31%, Apple (AAPL) 24%, Amazon (AMZN) 29%, Microsoft (MSFT) 10%, and Google parent Alphabet (GOOGL) 17%. Together, these companies added about $600 billion in market cap this year and are worth over $2.6 trillion collectively.
Does it really matter? On Wednesday it was announced he 34 biggest U.S. banks passed the Federal Reserve’s stress test and received a green light for plans to return capital to shareholders. The Fed determined the country’s biggest banks have “strong” levels of capital and would be able to keep lending even during a severe recession.
Economic data this past week was not the heavy hitting type, but Monday’s durable goods order is worth mentioning as it fell 1.1% all in but rose 0.1% excluding autos and airplanes it rose 0.1%. This is a volatile number month to month.
Businesses that were eagerly anticipating tax and regulatory relief may be taking a more wait-and-see attitude now, especially as Congress aims to revamp the nation’s health-care system yet again. Health care is one of the biggest business expenses. “After vast improvement at the start of the year, manufacturers have recorded fewer than expected durable-goods orders for the second consecutive month,” said Lindsey Piegza, chief economist at Stifel Fixed Income, in a note. “Short-lived optimism, no doubt, from pro-growth policies ushered in by the Trump administration have been replaced by a more lackluster reality of a little improved domestic growth and consumption profile.”
In the rear view mirror the latest revision to first-quarter GDP was raised to 1.4%, up from the previous estimate of 1.2% and double the initial 0.7% read. Friday we saw that consumer spending rose 0.1% in May after back-to-back 0.4% gains in April and March
Here is the 5 day weekly “intraday” chart of the S&P 500 …via Jill Mislinski.
While the tech sector has been hit a bit here the past 2 weeks it is interesting to see other areas doing just fine – transports in fact are near 52 week highs.
Financials also had a nice pop.
Here is the #1 ranked country for “life, liberty, and the pursuit of happiness” (It’s in Europe!)
Being a 30 year old now is very different than being a 30 year old in 1975.
The week ahead…
The market will be closed Tuesday for the holiday.
The first week of the month is the one heavy on data we like to chew on. On Monday we get ISM manufacturing with 55.2 expected vs 54.9 in the prior month. Also we get construction spending for May with 0.3% expected vs the -1.4% in prior month. Thursday we get ISM non-manufacturing with 56.5 expected vs 56.9 the prior month. (Note: all ISM readings above 50 signal expansion!) On Friday, the June employment numbers will cross, with economists expecting the economy added 177,000 jobs last month )vs 138,000 last month) while the unemployment rate remained steady at 4.3%.
Federal Reserve minutes will also be released Wednesday.
Short term: That outside reversal day in the NASDAQ the 2 Fridays ago maybe did mean something after all – life has been choppy since then and there is a bit of a downtrend. Please note if we do finally get some real selling there is a gap to “fill” below 5950. Last week was the first drop below the 20 day moving average for the S&P 500 as well.
“If you were to pick one particular point influencing trading right now, it would be that people think the large-cap tech stocks are overvalued right now,” said Wayne Kaufman, chief market analyst at Phoenix Financial Services. “I’m bullish on tech, especially semiconductor stocks, but there are concerns that it is an overcrowded trade, and that they’d be vulnerable if the economy slowed.”
The Russell 2000 remains stuck in this lengthy range in yellow, however it actually had a pretty decent week compared to the NASDAQ – maybe some rotation is afoot. Getting (and staying) out of the “big yellow box” would be a start.
We said last week with the NYSE McClellan Oscillator in a bit of a choppy and “red” state it’s time to be a bit cautious. No change in that theme – still caution until this gets above zero firmly and stays there.
Long term: Here are 5 year charts on the major indexes; we are a broken record here but it would take a very severe selloff to change prospects here. All this selling in the NASDAQ has done is put the TOP of the weekly range below our upper trend line.
Charts of interest / Big Movers:
Monday, Hertz Global Holdings (HTZ) surged 14% on a Bloomberg News report that the rental car company will be leasing a fleet of its cars to Apple to test the iPhone maker’s self-driving technology. This has been one rough chart considering the wonderful market backdrop that has been around the first half of 2017.
This week in the biotech lottery led to losses Tuesday for shareholders of Alder BioPharmaceuticals (ALDR) as the stock tumbled 28% after the company released phase three trial results for a migraine prevention drug.
Wednesday, Staples (SPLS) soared 8.5% to $9.94 on news reports that Sycamore was nearing a deal to buy the office-supply chain for more than $10 a share.
All sorts of crazy moves in the pharmacy retail sector Thursday as Rite Aid (RAD) tumbled 26.5% after Walgreens Boots Alliance (what a name! WBA) canceled its merger agreement with Rite Aid. Instead, Walgreens is buying 2,186 Rite Aid stores and related assets. In a related move, shares of Fred’s Inc. (FRED) plunged 23% after a deal to buy some Rite Aid stores was terminated.
It was a week; therefore (you know the story by now) a retailer had to get hit in the stock market – this time it was Pier 1 Imports (PIR) which tumbled 8.4% Thursday after it reported first-quarter revenue that missed expectations.
The Wall Street Journal previously reported that Nike and Amazon had struck a deal to sell some swoosh products, as both companies seek to combat counterfeiters and Nike aims to gain control over unsanctioned third-party sales. Though Nike didn’t sell direct to Amazon, it was the most-purchased apparel brand on the site, according to a recent Morgan Stanley survey. Nike’s partnership with Amazon follows nearly a decade of meetings between the two companies and long-running resistance by Nike to Amazon’s pitches.
Have a great week and we’ll see you back here Sunday!