- NASDAQ Composite +1.64% Dow +1.14% S&P 500 +1.39% Russell 2000 +1.97%
- NASDAQ Advancers: 1954 Decliners: 424
- WTI Crude: +0.5% Gold -0.9% 10yr Treasury 2.0321%
- Market Volume (First Hour): -13.6%
- Housing Starts fall 4% in July
- Building Permits rose 8.4% in July
- Consumer Sentiment fall to 92.1
It’s been quite the week but its Friday and all seems calm. Other than word that Trump wants a deal to buy Greenland, news flow is relatively light. The markets are nicely higher with the major averages up over 1% each, and even better – at midday the market are at session highs For the week however, each of the major indices are down about 2.5% or more with the Russell 2000 hardest hit with a 3.4% drop. Given the recent market turbulence and the yield curve inversion on Wednesday, its comes as no surprise that consumer confidence has also weakened. University of Michigan Consumer Sentiment fell to a seven month low, coming in well below expectations at 92.1 from 98.4 in July. The measures of current conditions fell to the lowest level August 2016 and future expectations fell back to January levels. Overall the results are among the lowest reading in the Trump era. Third quarter earning season is about two months out but a piece in the WSJ highlights estimates are coming down. Citing FactSet data, earnings for the S&P-500 are expected to show a 3.2% decline, far more than the 0.8% decline expected a few weeks ago. Again, there is still two months to go but earnings could be shaping up as yet another headwind for investors.
Home construction fell for a third month, falling 4% in July and June was revised lower to -1.8%. However the data is a little misleading, construction of apartment buildings fell for a second month yet construction of single-family homes rose to the highest since January. In contrast, building permits rose far more that expected to 8.4% in July, the biggest monthly increase in two years. Not only are lower interest rates fueling a mortgage refinancing boom they are underpinning stability in home construction. Next week investors get a look and new and existing home sales. Expectations call for higher existing home sales but flat for new home sales.
In the commodity pits crude oil modestly higher with WTI +0.7% and Brent +1%. In its Monthly Oil Report OPEC says demand will still increase this year by about 1.1 mbd but slightly less than previously estimated, and demand for next remains unchanged. Interestingly the report says supplies will tighten a bit since production from OPEC rivals will decline through next year. In summary the report says “the outlook for market fundamentals seems somewhat bearish for the rest of the year, given softening economic growth, ongoing global trade issues and slowing oil-demand growth.”
The sector view is green from top to bottom with Financials and Technology leading with 1.8% gains. Most other sectors are higher by at least 1% with the exception of Energy, up just 0.8%, and REITs and Utilities, up just 0.4%. When looking at the sectors we typically look at the S&P sectors, but sometimes the Russell 2000 counterparts offer a different take. That is exactly the case in with energy stocks; today the Russell 2000 Energy index is up 3.5%, suggesting investors are finding better value in smaller energy stocks versus the large caps. Elsewhere gold is retreating 0.9% for its biggest drop since July 5th, but the Dollar index is 0.1% higher for a fourth consecutive advance. Lastly the yield curve maintains a positive spread of about 0.062% and the 3-year treasury yield is back over 2% are touching record lows yesterday.
Brian’s Technical Take
Just yesterday we highlighted comments by Chancellor Merkel made earlier in the week late Tuesday that a greater fiscal response was not yet in the works. Given the global economic slowdown and the already deep negative, record low rate environment pervasive throughout Europe, this commentary was somewhat surprising to say the least.
While futures were higher in the early morning, risk-on sentiment received a jolt from the following headline “GERMANY READY FOR DEFICIT SPENDING IF RECESSION HITS: SPIEGEL.” This is certainly welcome news for the European banking sector which is facing massive headwinds from NIRP and as we noted yesterday is on the cusp of “breaking down” to new secular lows.
On the cautionary side the headline says “if recession hits” will then a fiscal response be in order. So instead of a proactive response, policymakers are favoring a slower, reactionary strategy. Super!
In the meantime the world is fast approaching $17 Trillion in negative yielding bonds.