U.S. equity markets posted a solid performance last week. The Nasdaq composite once again led the charge, posting a gain of 3.39% for the week. The S&P 500 gained 110.85 points, or 3.26%, and the Dow Industrials gained 723 points, or 2.59%.
The market’s ongoing rally continues to be fueled by several familiar themes and by some new ones:
- Indications of positive movement on bilateral trade talks between China and the U.S.
- Better than expected earning and guidance by a strong majority of the S&P 500.
- Blowout results from Salesforce.
- Pending stock splits by Apple and Tesla.
- A shift in the Fed’s methodology in measuring inflation moving forward.
- Momentum: the S&P 500 joined the Nasdaq composite in setting record highs, while the Dow turned positive for the year.
- S&P 500 posts five consecutive daily gains last week (7 in total).
- US equity markets remain in a “Confirmed Uptrend.”
All four major equity market indices are positive on a year-over-year basis:
- DJIA: +2617.77 pts./10.05%
- S&P 500: +620.07 Pts./21.47%
- NASDAQ: +3838.75 pts/48.86%
- Russell 2000: +105.63 pts/+7.17%
Recent strength in our rally has left the Nasdaq composite nearly 10% above its 50 DMA, while the S&P 500 set 5 record closing highs last week.
If a pullback were to materialize this week, it will likely be shallow and short-lived. Even the Dow Industrials have finally traded back to positive on the year.
Last Week’s Economic Highlights:
Tuesday: The Conference Board released its closely-watched survey of consumer attitudes, the Consumer Confidence Index, at 10:00 am. The reading for August (84.8) came in significantly weaker than both July’s revised reading (91.7) and Econoday consensus (93.0). The Consumer Confidence reading has continued to provide a counter argument to those that believe consumer confidence is on the rise. One of the most commonly used data points to support the thesis that consumer confidence is rising comes in the form of monthly new home sales figures. For the month of July, the reading was 901K – significantly above June’s revised reading of 774 K and Econoday consensus of 774 K. New home sales strength has been buttressed by the most recent home starts and permits data as well.
Interestingly though, the Case-Shiller House Price Index for June did not reflect surging demand, at least in as far as pricing is concerned. If anything, the opposite is the case. The Case-Shiller HPI 20-city adjusted and unadjusted data reflects a market defined by a lack of price appreciation. In the most recent release, the 20-city adjusted M/M Case-Shiller HPI for June was 0.0%. ZERO. The 20-city unadjusted M/M reading was not much different: 0.2%. On a Y/Y basis that specific reading was +3.5% – below Econoday consensus +3.9%. In short, it is very clear that there is meaningful demand for housing, as we discussed last week, but home owners are finding very little leverage in the form of pricing power.
Durable goods orders for July on the other hand provided investors, and as a result markets, with some unequivocally constructive data. New durable orders in July rose 11.2%. June’s initial topline reading was 7.3%, but was revised up to 7.7%. Ex-transports M/M came in at 2.4% and Core capital goods M/M were 1.9%. All three verticals reflected significantly more demand than the street was expecting.
The preliminary Q2 GDP report was -31.7%. You read that right. And as bad as that reads, Econoday consensus was calling for a sharper contraction in the preliminary Q2 GDP report. Q/Q Econoday consensus was -32.9%. Personal consumption contracted equally as sharply.
Three weeks ago, weekly jobless claims came in fractionally below 1 M. Investors cheered in response thinking that our economy was well on its way to recovery. That sentiment changed dramatically when the following week saw the claims figure above marginally above 1 M. Last week, the claims data for the previous week was 1,006 M – basically splitting the difference. The street is now going to use 1 M claims as a bogey. It makes little sense to be honest, but rest assured the weekly jobless claims data this week will all revolve around that 1 M bogey. The 4-week moving average, which is significantly more relevant, dropped to 1068 K.
In what was arguably the most important item on the economic calendar last week, Fed Chair Jerome Powell outlined a shift in monetary policy framework that allows for a focus to migrate from a set target to an average of readings. That change, it could be argued, will allow for inflation to run above the Fed 2% inflation target as the economy ramps up to full recovery in coming quarters. Even the mention of inflation, in theory, allowed for investors to consider an eventual return to some historical normalcy and Fed monetary relevancy.
Finally, on Friday, the Bureau of Economic Analysis released the personal incomes and outlays data for July. This was another report that provided better than expected results last week. The topline personal income M/M reading was +0.4%. Considering that personal income in June was a revised -1.0%, July’s reversal was significant. Personal consumption rose 1.9% on the month, bettering consensus, which was 1.5%. The balance of the report was well within channel.
This week’s economic calendar highlights:
Much of the economic focus this week will be on manufacturing and the extent to which it is or is not rebounding from the shock driven by COVID-19. The monthly Dallas Fed Manufacturing survey is out Monday. On Tuesday the ISM Manufacturing Index for August is released. July’s reading was 54.2. Consensus is 54.5 for this month. Motor vehicle sales figures for /August are released Wednesday morning. Econoday is expecting 14.9 M. International trade in goods and services data for July is expected to reflect deficit expansion. Econoday consensus is $-55.5 B. Weekly jobless claims should continue to improve with a sub 1 M number likely. The August Employment Report is out Friday morning. Nonfarm payrolls are expected to expand by 1,413,000. The official unemployment rate is expected to drop to 9.9% – that would be the first tick below 10% since COVID-19 put a strangle hold on the US and global economies. And manufacturing payrolls are expected to jump to 36,000 from July’s 26,000.
Flickr photo: .aG
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