- NASDAQ Composite +1.50% Dow +1.05% S&P 500 +1.22% Russell 2000 +1.36%
- NASDAQ Advancers: 1855 / Decliners: 563
- Today's Volume (vs. Friday) -10.00%
- Crude $55.62 +$0.75, Gold $1495.80 -$16.70, VIX 17.17 -1.30
- PBOC set the yuan above 7 again at (7.0365) per USD
- PBOC unveiled rate reforms to help push borrowing costs lower
- Reaction to earnings / analyst commentary: EL +9%, SONO + 11%, ARMK +9%, AMGN -1.5%
Last week we went on another roller-coaster ride for the markets. When all was said and done, the major indexes were only slightly lower. The S&P 500 closed lower by 1%, the Dow was down 1.5%, Nasdaq down 0.8% and the Russell 2000 closed lower by 1.28%. As far as the miles driven, the S&P 500 traded in 3.65% range which showcased investors’ concerns of a slowing global economy. The daily inversion of the 2/10 year Treasury yield was one of the main drivers there as were currency concerns, U.S. - China trade headlines, German fiscal policy and U.S. economic data.
Trading volumes were significant mid-week, while Monday and Friday followed the pattern of lighter volumes consistent with summer Mondays and Fridays. On a daily basis, the consolidated tape last week averaged 7.48 billion shares a day, a 5.65% increase above the year-to-date average of 7.08 billion a day. Wednesday saw the trading volumes spike to 8.8 billion shares as the market sold off over 3% that day, making it the 9th busiest day of the year, volume wise.
Today, we are higher again building on Friday’s strong move. Treasury yields are higher this morning as the yield curve is steepening. The 30YR is back above 2% while the 2/10 YR curve remains positive (not inverted) by 6 basis points.
All 11 S&P 500 sectors are trading higher with Energy, Tech and Communications all up over 1.6%. Crude oil builds on Friday’s gains. Gold is lower but still hovering near the $1500 level. The dollar is slightly higher while the yield on the 10-yr is at 1.59%.
German Finance Minister Scholz, said on Saturday that Germany has the ability to counter any future economic crisis. Reuters reported the Minister saying Germany has the fiscal strength to counter any future economic emergencies "with full force," making available up to $55 billion of stimulus if needed. While action isn't imminent, Scholz indicated that domestic and global warning signs are increasing pressure on Germany to consider suspending its balanced-budget policy. Items such as a contracting economy and the risk of expanded trade conflict with the U.S. are of concern. Friday der Spiegel reported that Germany is ready to give up its balanced budget goal in the event of a recession.
|Tuesday||7:45||Retail Economist/Goldman Chain Store|
|Tuesday||8:55||Redbook Chain Store|
|Tuesday||16:30||API Crude Inventories|
|Wednesday||7:00||MBA Mortgage Purchase Applications|
|Wednesday||10:00||Existing Home Sales|
|Wednesday||10:30||DOE Crude Inventories|
|Thursday||8:30||Initial Jobless Claims|
|Thursday||8:45||Flash Manufacturing PMI|
|Thursday||9:45||Flash Services PMI|
|Friday||10:00||New Home Sales|
Brian’s Technical Take
After finishing last week with two consecutive days in the green, the S&P 500 is seeing strong upside follow through (+1%) due in part to a growing drumbeat of fiscal stimulus from across the pond in Europe. Officials in Germany are reportedly preparing a fiscal stimulus plan to revive the local economy and consumer spending just as the German central bank today warned its economy could be slipping into recession.
In accordance with long term seasonal trends, U.S. stocks have seen a turbulent August with the S&P 500 declining as much 6.8% from its late July highs. The SPX made its recent low back on August 5th and after a brief relief rally retested and successfully held those lows in the following session to form a small, “double bottom” pattern, as seen in the below 30-minute period chart. The ensuing wave higher stalled just below the 2,945 minor resistance, representing a price gap made during the initial August descent, before then retracing a near exact retest of the early August lows down at 2,822.
The now three day advance has the potential to form a larger “double bottom” pattern which will be confirmed by a convincing breakout above the 2,945 price gap. Right now the large cap index is seeing minor resistance at the 2,917 price gap where overhead supply is expected to increase.
While the sharp decline in rates has many market participants discussing the “R” word, the intermediate and long term price action in the broad equity market has been relatively positive. Yes, there are concerns in select industries such as financials with the bank indices down 15% and 20% from YTD and 52-week highs, and the small cap Russell 2000 off 13% from its 52-week highs, however both categories of stocks have a greater sensitivity to rates which are largely being dragged lower due to the interconnectedness of the global bond market and slowing global economy and less so due to concerns over the U.S. economy.
Talk of a greater fiscal response from Europe’s largest economy and the potential for a bilateral U.S. – U.K. trade deal should help alleviate some of those pressures. And while the yield curve (10YR-2YR spread) briefly inverted last week for the first time in twelve years, this is not a timing signal to get bearish equities. In the near term, we should expect to see continued volatility in part due to seasonal weakness in August and September and the extensive list of geopolitical risks, however the longer term outlook for U.S. equities, from a technical perspective, is not nearly as dire as the bond market may be signaling.
Nasdaq's Market Intelligence Desk (MID) Team includes:
Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).
Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.