After two weeks of rallies, the S&P 500 mostly consolidated this week – except for Friday the action was very reminiscent of 2017 with almost no volatility at all intraday and modest gains or sideways action. Friday was the wrench in the mix, with a gap down to open the day but buyers came in during the afternoon and in the end the markets had a week to digest prior gains. Friday’s action was due to TRADE WARS(tm)!
President Donald Trump approved tariffs on about $50 billion of Chinese goods, marking the latest escalation in the trade spat between the two countries. Beijing has said it intends to assess tariffs on a corresponding amount of U.S. goods, while Trump said the U.S. would pursue more tariffs if China retaliates. Subsequently, Trump said there was no trade war with China.
The Federal Reserve did what it had telegraphed what it would do:
The Federal Reserve voted to raise its benchmark federal funds rate by a quarter percentage point to a range of 1.75% to 2%. Eight of 15 Fed officials now expect at least four rate hikes will be needed this year, up from seven at the March meeting.
The Fed’s dot plot, a projection by the members of the central bank’s expectations for rates in the future, shows the policy-setting Federal Open Market Committee penciling in two additional rate increases in 2018 for a total of four increases in the year. That is up from expectations from three in the March Fed rate estimates.
More interesting this week was the European Central Bank which Thursday left interest rates unchanged and laid out plans to taper its program of monthly bond purchases later this year. The central bank is aiming to bring them to a halt by the end of 2018. There was no “taper tantrum” by markets, as we saw in the Bernanke era.
“The ECB did a pretty good job telegraphing what it’s planning to do. [ECB President Mario] Draghi is following Ben Bernanke’s playbook, with a zero-interest-rate policy, bond buying, and then eventually shrinking the central bank’s balance sheet. When we did all that, our market continued to move higher, which gives investors confidence that the blueprint they’re following is the correct one,” said Phil Orlando, chief equity market strategist at Federated Investors.
For the week the S&P 500 closed up fractionally while the NASDAQ added yet another 1.3%!
On the economic front the consumer price index popped 0.2% in May; some funny headlines out there about that being the “hottest in 6 years!” – it’s an annualized rate of 2.4%… woo hoo.
The increase in the cost of living last month was spearheaded by the rising cost of gasoline, medical care and shelter — rent and home prices. The cost of medical care has accelerated again after a slowdown toward the end of 2017. Ditto for rents and home prices.
Meanwhile the producer price index did surge 0.5% in May on the back of the big jump in oil. Core producer prices that exclude food, energy and trade rose a much smaller 0.1% last month.
Retail sales jumped 0.8%, double expectations.
“U.S. households are back to their free spending ways, with the strength of May’s retail sales figures implying that second-quarter real consumption growth (and GDP growth for that matter) will now be more than 4% annualized. With the benefit of the tax cuts, strong employment growth and a slow acceleration in hourly wage growth, consumption growth should remain strong going into the second half of this year,” said Paul Ashworth, chief U.S. economist at Capital Economics.
Here is the 5 day weekly “intraday” chart of the S&P 500 …via Jill Mislinski.
Speaking of oil, the chart has a bit of a “bear flag” look to it which should make consumers happy if it fulfills. Turn the chart upside down and looking at the most recent period you’d love to see that chart action if you were a bull – i.e. a breakout, consolidation with a minor pullback, then a push forward Friday. Of course we are not looking at the chart upside down so it might bode well for bears – we shall see.
The week ahead…
No major economic news – trade war concerns certainly could pop up again.
Short term: The S&P 500 was quiet while the NASDAQ continued to churn up.
The Russell 2000 was steady as a rock in a consolidation phase after a huge run.
The NYSE McClellan Oscillator went slightly negative late in the week but not enough to raise eyebrows yet.
Long term: Still very positive for the “buy and never sell” crowd.
Charts of interest / Big Movers:
Monday, Sempra Energy (SE) jumped nearly 16% after activist investors Elliott Management and Bluescape Resources revealed a “value creation” strategy for the company.
Tuesday, Lands’ End (LE) soared 27% after the retailer said its first-quarter sales got a 12% boost from sales of uniforms to Delta Air Lines.
In this week’s biotech lottery, Galmed Therapeutics (GLMD) surged 151% Wednesday after successful trial results of its drug to treat nonalcoholic steatohepatitis. You can say that again.
Thursday, Tailored Brands (TLRD) tanked 22% after the retailer late Wednesday reported comparable sales below analyst forecasts.
Also Thursday, Etsy (ETSY) jumped 26% after the company raised its 2018 revenue growth guidance range to 32% to 34% from the range provided last month of 22% to 24%. Etsy said the increased guidance comes as it plans to increase the transaction fee it charges when a seller makes a sale. The fee was previously 3.5%, but will increase to 5.0% on July 16.
Go Twitter (TWTR) go!
Have a great week and we’ll see you back here Sunday!