If, like me, you were expecting something, anything, to push the market with conviction one way or the other after Labor Day, that certainly has not materialized yet. Yesterday was downright painful. The S&P 500 closed unchanged, the Dow Industrials slipped 0.07% and the Nasdaq ticked higher by 0.15%. In short, from an index performance perspective, it as a flat day. Volume was marginally mixed as well; falling on the NYSE (-3.72%) and rising on the Nasdaq (+5.61%). You can certainly be forgiven if the market’s sleepwalking has left you uninterested or simply bored.
My suspicion is that the cautious nature of trading coupled with the ever so gradual uptick in prices, as we have seen for much of the past six weeks, is an indication that investors have little certainty over when or if the Fed will act to raise rates as a result of economic data that has been consistently inconsistent. In this landscape, market trend is incrementally lifting prices and receiving additional impetus from company specific news. Yesterday’s case in point was the Apple product launch featuring the newly released iPhone 7. AAPL’s price rose 0.6% on the day and volume surged, allowing for the Nasdaq’s composite volume to register an uptick. Nintendo (NTDOY) rallied on the news that Apple would make Pokémon Go available on the Apple Watch.
Away from Apple, this week’s trading has been lackluster. That may due in part to the economic data we have received. Tuesday’s release of August’s ISM-Non Mfg. Index left investors flat. The reading came in at 51.4 versus consensus calling for a more robust 55. Much the same was the case with the Labor Market Conditions Index for August which reflected contraction of -0.7 verse the prior month’s revised reading of 1.3. Even yesterday’s release of the PMI Services Index for August was a dud coming in at 51. To top it all off, the Fed’s Beige Book spoke to simply to moderate/modest economic expansion.
Mixed equity performances, mixed volume, mixed economic data and continued drift in our post-Labor Day equity market climate have seemingly lulled investors and traders alike into a degree of complacency. That complacency is best illustrated by the fact that though the market remains elevated, by any measure, there has not been a single session in 51 where the S&P 500 has dropped more than 1%. Historically speaking, that is an abnormality. It also provides for a relatively high degree of certainly that the long overdue pullback is in the offing. I know the argument is being made that small caps are outperforming the broader market and that should lead to further price appreciation across the board, and it may, but not before we establish some sort of a base to build on. The case is also being made that with bond yields at historically low levels, where else are investors going to allocate if not to equities? That is fair but that doesn’t mean that we aren’t due for a degree of reversion to the mean. I do remain bullish and am not calling for an end to the bull run yet. I am only saying the laws of physics cannot be ignored.