Much Ado About Nothing Week Ending August 20
Dow 35,061 (395) or (1.1%)
Nasdaq 14,672 (108) or (0.73%)
S&P 4,436 (27) or (0.60%)
A Typical Summer Week in the Markets
All three indices traded down this week and the defensive sectors took over market leadership (Utilities, Healthcare, and Real Estate). While defensive names claimed the top spot and Technology managed to trade higher, the re-opening cyclical names were all taken to the woodshed and punished this week. Financials, Industrials, Materials and Energy were all down at least 2% for the week and Energy was down a whopping 7.33% over the five trading sessions.
Economic Data Indicates Slowing Growth
The two bright spots for the week were retail earnings and the jobless claims report. Earnings across the retail sector were strong and jobless claims were the lowest since the beginning of the pandemic at 348,000 claims. However, every other metric disappointed: Chinese retail sales, Empire State Manufacturing, U.S. Retail Sales, and the Philadelphia Fed all fell short of expectations. The U.S. Treasury yield seems to agree that slowing growth is the bigger concern, trading down 2 basis points to 1.26%. On Thursday, the Bureau of Economic Analysis will release Core Personal Consumption Expenditure, one of the most closely watched inflation indicators. The market will be looking to reverse the increasing monthly trend witnessed since March: 2%, 3.1%, 3.4%, 3.5%.
Fed Hawkishness Premature?
Over the last two weeks, no fewer than six Presidents or Officers of the Federal Reserve Bank made hawkish comments regarding tapering asset purchases this fall. Despite that, when the minutes from the last Fed meeting were released on Wednesday and revealed that tapering had been discussed, the market fell as if it were surprised by this disclosure. However, the disappointing economic data from this week may give the Fed pause and indeed both Minneapolis Fed President Kashkari and Dallas Fed President Kaplan gave comments qualifying when they might support tapering. All eyes will be upon Jackson Hole, Wyoming on Friday when Fed Chair Jerome Powell makes comments.
The NY Times is reporting that the FDA will give full approval to Pfizer’s Covid-19 vaccine on Monday. San Francisco’s proof of vaccination to enter indoor facilities began today. The seven-day moving average of infections in the U.S. rose 14% week over week to 133,056. Deaths rose 10% week over week to 641.
Market Data Points Next Week: Home Sales, Durable Goods and Fed Chair Jerome Powell speaks.
- Monday – Economic Data: Markit Manufacturing and Services PMI, Existing Home Sales.
- Tuesday – Economic Data: New Home Sales.
- Wednesday – Economic Data: Durable Goods Orders.
- Thursday – Economic Data: Jobless claims, GDP revision.
- Friday – Economic Data: Personal Income, Consumer Spending, Core PCE, Univ of Michigan Consumer Sentiment. The Fed: Chairman Jerome Powell speaks at the Jackson Hole Economic Symposium.
Last week’s trading…
Monday– Dow +110 to 35,625 (record close), the Nasdaq (29) to 14,860, and the S&P +11 to 4,479 (record close).
- Markets traded down to start the day on poor economic data out of China which has closed a major port and reintroduced travel restrictions due to the resurgence of the Covid virus. Chinese retail sales grew only 8.5% year over year vs expectations of 11.5% growth.
- The Empire State Manufacturing number did little to quell growth fears as August’s number was 18.3 vs expectations of 29 and vs last month’s record setting 43 print. Anything over zero indicates expansion in New York manufacturing.
- The U.S. 10-year Treasury reflected the slowing growth fears, retreating to 1.259%.
- Despite this, and the chaotic withdrawal from Afghanistan, all three indices rallied, and the Dow and the S&P set new record highs.
- Breadth was good: seven of eleven sectors traded higher, but leadership was suspect as the top names were all defensive in nature, Healthcare, Utilities and Consumer Staples. Energy was the worst performing sector again.
- Minneapolis Fed President struck a dovish tone in comments to Bloomberg today saying he “would like a few more strong labor reports before tapering.”
- Earnings: Roblox (RBLX) an online video game platform more than doubled their revenues yet still missed analysts’ expectations on revenues as well as earnings. RBLX traded down 5.23% in the regular session and another 5.11% post-close.
Tuesday – Dow (282) to 35,343, the Nasdaq (137) to 14,656, and the S&P (31) to 4,448.
- Retail sales dropped 1.1% in July vs expectations of a 0.3% decline. This reignited slowing growth fears in the markets and all three indices closed lower.
- The decline was widespread with seven of eleven S&P sectors trading lower while the four advancing sectors were all defensive plays.
- The U.S. 10-year Treasury yield rose 2bp to 1.27%.
- Fed President Jerome Powell gave the market nothing to chew on with his comments today. Minneapolis Fed President Kashkari bashed crypto assets and repeated that he wanted to see a few more strong labor reports before considering tapering asset purchases.
- Earnings: Walmart (WMT) blew out their numbers pre-open and the stock traded slightly down during the regular session. The Home Depot (HD) reported, beat numbers, but reported fewer customers visiting their stores and thus felt the wrath of the Street; HD traded down 4.27%.
Wednesday – Dow (382) to 34,960, the Nasdaq (130) to 14,525, and the S&P + (47) to 4,400 .
- All was well until 2pm EDT this afternoon when the Fed FOMC minutes from their last meeting were released. Shockingly (heavy sarcasm), they indicated that the committee discussed the tapering of asset purchases later this year. Why this was such a surprise to the markets when no fewer than five individuals associated with the Fed expressed this very opinion over the last two weeks is beyond comprehension.
- The selloff took no prisoners: eight of the eleven S&P sectors fell today with Energy taking it on the chin, down 2.4%.
- The U.S. 10-year Treasury yield fell 1bp to 1.26%.
- Earnings: Target (TGT) beat numbers, raised their forecast, approved a $15 billion stock buyback and yet still traded down 2.78%. Nvidia (NVDA) beat earnings and revenue expectations but missed on their sales numbers for their cryptocurrency chip product and traded down 2.15%. Lowe’s (LOW) was a rare bright spot today, beating expectations, raising guidance, and trading up 9.59%. TJ Companies (TJX) beat expectations, added to their stock buyback plan, and traded up 5.57%. Cisco Systems (CSCO) met expectations but warned of continuing component shortages. CSCO traded down 1.54% intraday and another 1.9% post-close. Finally, market mover and meme trading advocate RobinHood (HOOD) reported a massive loss of $502 million dollars, which the Street expected and impressively, more than doubled their revenues. However, the brokerage firm also warned that a decrease in trading is already affecting their Q3 numbers. HOOD traded down 9.34% post-close.
Thursday – Dow (66) to 34,894, the Nasdaq +15 to 14,541, and the S&P +5 to 4,405.
- All three indices rallied from their lows to finish with a slight loss (Dow) or slight gains (Nasdaq and S&P).
- Initial Jobless Claims were the lowest since the pandemic started, printing at 348,000 vs expectations of 363,000 and last week’s slightly revised number of 377,000 claims.
- The August Philly Fed number disappointed, printing at 19.4 vs expectations of 22, further stoking slowing growth fears.
- Goldman Sachs did not help sentiment, cutting their Q3 economic growth forecast from 9% to 5.5%.
- Sectors traded mixed; six of the eleven S&P sectors traded lower with Energy continuing to decline, down another 2.65% today and down 11.86% over the last three months. YTD however, Energy is still the fourth best performing sector, up 19.88%. Tech and Real Estate led those sectors that traded up on the day.
- The U.S. 10-year Treasury yield fell 2bp to 1.24%.
- Earnings: Macy’s (M) crushed their earnings and revenue numbers, raised guidance and announced that Toys R Us will set up shops inside of 400 Macy’s stores. M traded up 19.59%. Applied Materials (AMAT) crushed their revenue and earnings expectations and raised guidance as well. AMAT traded up 1.44%.
Friday – Dow +225 to 35,120, the Nasdaq +172 to 14,714, and the S&P +35 to 4,441.
- Indices all rallied higher after trading lower pre-market.
- Dallas Fed President Robert Kaplan walked back hawkish comments he made two weeks ago during a Texas Tech online event today. If the Delta variant started to affect demand here domestically, he stated he would be open to delaying tapering.
- Breadth was fantastic: all eleven S&P sectors traded higher, led by Tech.
- The U.S. 10-year Treasury yield inched higher 2bp to 1.26%.
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