Taper Tantrum Avoided(Market Recap Week Ending Aug 27)?
Dow 35,061 +335 or 0.95%
Nasdaq 14,672 +415 or 2.8%
S&P 4,436 +68 or 1.5%
U.S. 10 Year Treasury Yield 1.315%, +5 bp or 3.9%
All Eyes on Jackson Hole
Federal Reserve Chairman Jerome Powell accomplished Friday what previous Chair Ben Bernanke could not do in 2013, successfully inform the markets that the era of easy money was sliding beneath the horizon without spooking the markets into a bear phase nor sending the U.S. 10-year treasury yield into orbit. Powell stated that while the inflationary picture had improved enough to begin tapering the Fed’s $120 billion monthly asset purchasing program this year, the labor situation had more room to improve before rate hikes would be considered.
Economic Data: Growth vs Inflation
The economic data continues to thread the needle, Goldilocks style. Everything was either just a little bit better than expectations or just a little bit worse, which for the market is “just right.” Of all the data released this week, the most important was the inflation data that came out on Friday. While year over year inflation was up 3.6%, the highest level since May of 1991, the month over month increase slowed from +0.5% last month to +0.3% this month. This one piece of data along with Powell’s comments fueled Friday’s rally. Next week, the Nonfarm Payroll report (jobs report) will be heavily scrutinized to speculate as to when the Fed may start to discuss raising interest rates in addition to the asset tapering that should begin prior to year end.
The 7-day moving average of daily new infections increased 2.8% this week to 142,003. The 7-day moving average of deaths increased 11% vs last week to 864 deaths/day. On Tuesday, the Arkansas Governor announced there are no further ICU beds available in his state for Covid-19 infected patients. Alabama also has no ICU beds available. Florida hospitals are reporting 95% capacity of their ICU beds (subscription required).
Market Data Points Next Week: it’s all about the Friday jobs report.
Monday – Pending Home Sales.
Tuesday – Chicago PMI, Consumer Confidence.
Wednesday – ADP employment, Markit & ISM Manufacturing PMI.
Thursday – Jobless claims.
Friday – Nonfarm payrolls, Unemployment rate, Markit and ISM Services PMI.
Last week’s trading…
Monday– Dow +215 to 35,335, the Nasdaq +227 to 14,942 (record close), and the S&P +37 to 4,479 (ties record close).
- The FDA awarded full approval to Pfizer and BioNTech’s Covid-19 vaccine sending the markets higher on hopes for more pervasive vaccine mandates. The Nasdaq set a new closing record and the S&P matched a previous high.
- Economic numbers were mixed: Markit Manufacturing and Services PMI missed their expectations, but existing home sales were better than expected.
- Seven of the eleven S&P sectors traded higher, focused on the growth and tech sectors but energy led the day, recovering 3.76%.
- The U.S. 10-year Treasury yield ticked up 1 bp to 1.27%
Tuesday – Dow +30 to 35,366, the Nasdaq +77 to 15,019 (record close), and the S&P +6 to 4,486 (record close).
- The cyclical value reopening plays retook leadership of the markets today despite the 62nd record close of the year for the Nasdaq.
- Energy led six of the eleven S&P sectors higher.
- Meme stocks exploded higher on no news: AMC Entertainment (AMC) +20%, GameStop (GME) +27.5%, Robinhood (HOOD) +9%, Bed Bath and Beyond (BBBY) +4.49%, BlackBerry (BB) +9.5%.
- New Home Sales were up 1% month over month and just beat expectations (708k vs 700k expected).
- The U.S. 10-year Treasury yield ticked up 2 bp to 1.29%
- Earnings: Nordstrom (JWN) blew out their numbers and raised their forecast, the stock traded down 8% post-close. Best Buy (BBY) crushed their numbers and traded up 8.32% in the normal session. Chinese e-commerce firm JD.com (JD) beat and traded up 14.4%. Cybersecurity firm Palo Alto Networks (PANW) beat and traded up 18.6%.
Wednesday – Dow +39 to 35,405, the Nasdaq +22 to 15,041 (record close), and the S&P +10 to 4,496 (record close).
- The reopening trade continued its leadership position.
- Seven of the eleven S&P sectors traded higher, led by Financials, Energy, Industrials and Materials.
- The U.S. 10-year Treasury yield jumped 6 bp to 1.35%
- July Durable Goods Orders were better than expected; a 0.1% decline month over month vs a -0.5% estimate. Further, ex-transportation, the number rose 0.7%.
- Earnings: SalesForce (CRM) beat their numbers and raised their earnings guidance. CRM traded up 2.36% in the extended session. Williams-Sonoma (WSM) crushed their numbers, raised their outlook, and raised their dividend by 20%. WSM traded up 12.74% post-close. Snowflake (SNOW) missed earnings but beat revenue expectations. The data cloud company traded up 4.45% after hours.
Thursday – Dow (192) to 35,213, the Nasdaq (96) to 14,945, and the S&P (26) to 4,470.
- All three indices traded lower today on lackluster economic numbers, a terrorist attack outside the Kabul airport (at least 100 people dead, including 12 U.S. soldiers), and the specter of the beginning of the end of easy money (tapering asset purchases).
- Initial Jobless Claims narrowly missed: 353,000 vs 350k expected and last week’s upwardly revised 349k print.
- Revised Q2 GDP was revised slightly higher to 6.6% vs the original print of 6.5% but missing expectations of 6.7%.
- The U.S. 10-year Treasury yield traded down slightly to 1.345%
- Ten of eleven S&P sectors traded down led by Energy (-1.5%).
- Kansas City Fed President Esther George said that tapering was appropriate given the recent economic data. Dallas Fed President Kaplan resumed his hawkish comments after equivocating last week, saying today he would like to see the Fed begin tapering asset purchases by September.
Friday – Dow +242 to 35,455, the Nasdaq +183 to 15,129 (record close), and the S&P +39 to 4,509 (record close).
- Fed Chair Jerome Powell successfully threaded the needle today indicating that inflation has reached a point where tapering asset purchases is appropriate while insisting that the labor market needs additional improvement before interest rate hikes are considered.
- Economic data helped fuel the rally as well; Personal income +1.1 vs +.3% expected and +.1% last month, Consumer Spending slowed, inline with expectations at +.3% but down significantly from last month’s +1.1%. Most importantly, Core PCE printed inline at +.3% versus July’s +.5% lending further credence to the Fed’s theory that inflation is slowing and transitory.
- The markets cheered Powell’s comments and the data; the Nasdaq and S&P set new closing records and the Dow rose significantly.
- Nine of eleven S&P sectors traded in the positive with the reopening trade leading the way. Energy led the rally and continues to be extremely volatile, up 2.6%. Other leaders included Communication Services, Materials, and Financials.
- The U.S. 10-year Treasury yield traded lower, down 3bp to 1.315%.
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