As equity markets continue to trade higher – fueled by momentum, improving economic data, and better-than-expected earnings, the urge to sell into this trade higher is undeniable. The leaders in this trade higher have registered gains from the March lows that are breathtaking. That said, I do not think it is time to trim back on the winners just yet. I think markets have reflected risk/reward fairly thus far and believe they have room to run, though we may yet see some healthy rotation. I am not alone in my bullishness. Highly respected Saint Louis Federal Reserve Bank President James Bullard put it this way last week “I think Wall Street has called it about right so far.” Bullard is not one known for hyperbole.
There are other indications in the form of economic data that suggest that we may yet have more room to run. Trucking freight, long a closely-watched indicator of economic activity, has roared back from the lows of mid-March according to transportation industry analysis group FTR. The FTR Trucking Conditions Index (TCI) posted its highest reading in a decade in June. Housing, another closely watched barometer of economic health and consumer confidence, has been on a tear as I outline in the economic calendar highlights below.
US equity markets continued to add to their historic gains last week. The strength exhibited by the market was on display across the board. The Nasdaq Composite gained 292.50 points or 2.65%. The S&P added 24.31 points or 0.72% and the Dow was flat on the week. Besides the outperformance to the upside by the Nasdaq, which recorded repeated highs last week, the S&P 500 traded into historic territory as well.
The broadening out in sponsorship is likely to offer some stability or ballast to our rally.
We closed out the week on a very bullish note Friday. The Nasdaq gained 0.42%, the S&P 500 gained 0.34% and the Dow Industrials led the pact adding 190.60 points to close at 27,930.33. NYSE volume rose 1.5% while Nasdaq volume slipped 6.07% on the day. So bullish was the price action on Friday, in fact, the Nasdaq and S&P 500 closed at record highs while as the chart below illustrates, the Dow Industrials are only 6% off their all-time high.
Last week’s economic highlights: Stronger PMI, housing starts, permits, and sales for July
Housing starts and permits for July were released at 8:30 am. Both starts and permits came in significantly stronger than expected. Econoday consensus was calling for starts to be 1,240 M and permits to be 1,300 M. In reality they were 1,496 M and 1,495 M, respectively. Housing data continues to provide evidence that demand for housing, particularly in suburban and rural areas, continues to be robust. As we have discussed, that demand is being driven by household formation and a massive exodus from urban areas to both the suburbs and rural areas.
The highlight of the day came in the form of the FOMC minutes. The minutes reflected a Fed that is seemingly in a pause position with regard to rates. The minutes, as a result, did fuel a degree of selling. Of particular interest was the softening in the price of gold on Wednesday. Equities also caught a short-lived wave of institutional selling in response to the Fed’s minutes. Crude oil remains channel bound.
Weekly jobless claims for the week ending 8/15 left markets unimpressed. You will remember last week’s data finally reflected a drop below 1 million weekly claims. This report reflected a reversal of sorts with claims once again rising above 1 million. For the week, claims came in at 1,105 K. The previous week’s results were revised incrementally higher as well to 971 K.
The Composite Purchasing Manager’s Index (PMI) reading for August came in substantially hotter than Econoday and the street were expecting. For August, the PMI composite reading was 54.7. July reading was a revised 51.3. The manufacturing vertical came in at 53.6 and services came in at 54.8. All PMI composite results were better-than-expected. Existing home Sales for July were significantly stronger than expected – across the board. The sales reading in July was running at an annualized rate of 5.860 M. Econoday consensus was 5.400 M. June’s revised results were 4.700 M. The month-over-month rate jumped by a whopping 24.7%. On a year-over-year basis, the reading rose to 8.7% from June’s -11.7%.
This week’s economic calendar highlights: Consumer Confidence, Durables, GDP
The Conference Board’s Consumer Confidence reading for August is released Tuesday morning at 10:00. Econoday consensus is 93. July’s reading was 92.6. July new home sales are also released at 10:00. Consensus is 774 K – nearly unchanged from June’s 776 K. Supply constraint is keeping a ceiling on this data.
Durable Goods data for July is released at 8:30 am. All three verticals within the report are expected to reflect modest contraction. New orders M/M are expected to slip from June’s 7.3% reading to 4.3%. Econoday consensus is calling for an Ex-Transport M/M to be 2.0% and the Core Capital Goods reading for the month is expected to be 1.7%.
The preliminary Q2 GDP reading is due out at 8:30 am. It is going to be ugly. There is no way around it. Econoday is calling for -32.9% in the Q/Q reading and a Q/Q drop in consumer spending of -34.6%. Weekly jobless figures for the week ending 8/22 are expected to be in-line with last week’s reading. Above or below 1 M? Jerome Powell is scheduled to give a talk around 9:00 am.
The Census Bureau releases the July international trade in goods data. $-73.0 B is the expected figure. Interestingly, in June’s release, we saw a M/M jump in exports (+13.9%) while imports slumped to 4.8%. Personal income and outlays for July are released at 8:30 am. Econoday expects income to slip 0.2%, a big improvement over the previous reading of -1.1%. Consumption is expected to slip from 5.6% to 1.5%.
Flickr photo: by free pictures of money
Kenny’s Commentary subscribers receive the note in their inbox Monday’s before the US markets open plus full economic calendar, media, charts, Mark Sutin’s Insights, Tortoise Advisors strategies, and Sam Stovall’s analysis: Subscribe