A big gap up Monday due to the Chinese – U.S. “trade truce” began the week, and then some disappointment of “good news” on the employment report Friday were the bookends of the week. Remember we are in the “bad news is good news” stage of the market, so positive news is seen as a negative in terms of the Federal Reserve cutting rates.
Stocks initially jolted higher Monday after Saturday’s meeting between China’s President Xi Jinping and President Donald Trump at the G-20 meeting in Japan, mainly because Trump said the U.S. would maintain current tariffs but hold off on new ones. Trump also said he would ease up on a ban on Huawei, allowing U.S. companies to sell their products to the Chinese tech giant, though the company will remain on a trade blacklist.
This was also great news for bulls:
Current International Monetary Fund Managing Director Christine Lagarde was nominated to replace Mario Draghi as the head of the European Central Bank. Lagarde’s past rhetoric suggests that she may be more inclined to advocate for easier monetary policy, which could continue to fuel risk-taking here and abroad.
A busy week on the economic front. First ISM Manufacturing which fell from 52.1 in May to 51.7 in June. That reading is getting precariously close to the 50 line which delineates growth from retraction. (But the stock market liked that news as it means Fed easing!). Also Monday, construction spending fell by 0.8% in May, the largest decline since November and below economists’ expectations of 0.3% growth. Wednesday, ISM Services fell from 56.9 to 55.1 but still well above the 50 line – factory orders fell 0.7%.
Friday Wall Street was treated to the employment number. Futures plunged initially on the good news but by end of days bulls had gotten most of those losses reversed.
The U.S. economy created 224,000 new jobs in June, above economists expectations of 170,000 jobs, while the unemployment rate ticked up slightly to 3.7% from 3.6%.
“I don’t see the Fed changing what they’ll do based on one jobs report,” said JJ Kinahan, chief market strategist at TD Ameritrade. “The market says the probabilities of a rate cut are 100%. The Fed has been backed into a corner because expectations are so high.”
For the week, the S&P 500 gained 1.7%.
Here is the 5 day weekly intraday chart of the S&P 500 … not via Jill Mislinski.
The week ahead..
The Fed has been backed in a corner! Powell is going to testify in front of Congress Wed / Thu as well.
Fun fact: The Federal Reserve Bank of New York currently forecasts a 29.6% chance of a U.S. recession in the next twelve months. The bank’s model, based upon the spread between 10-year and three-month Treasury yields, has reliably predicted recessions once it has hit the 30% threshold, said Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management.
Short term: the S&P 500 finally broke through old highs. Now we are waiting for the NASDAQ.
The Russell 2000 has been stuck in this range for a long time – other than a few months in latter 2018 and early 2019 it has been the laggard of the major indexes.
The NYSE McClellan Oscillator is back where bulls want it.
Long term: can’t complain.
Charts of interest / Big Movers:
Monday, Boeing (BA) dropped 7.5%. The company has been struggling with the grounding of its 737 Max jets, but also more broadly is vulnerable to tariff negotiations.
Coty (COTY) fell 13.5% Monday, after the beauty-products company announced a turnaround plan that will add $160 million in extra costs and involve a $3 billion impairment of its intangible assets.
Tuesday, Amarin (AMRN) gained 16%, after the pharmaceutical company raised its full-year outlook, while announcing plans to double its U.S. sales force to better market its Vascepa treatment for cardiovascular disease.
Symantec (SYMC) surged 14.6% Wednesday after a report of a potential buyout by chip maker Broadcom (BRCM).
Have a great week and we’ll see you back here Sunday!