Before The Bell
The most recent five-day stretch of trading on Wall Street was a wild ride for investors, but when all was said and done, the major averages where none too far removed from where they started last week. The bears held a slight advantage, with the Dow Jones Industrial Average, the NASDAQ Composite, and the S&P 500 Index falling 1.1%, 0.7%, and 0.6%, respectively. In recent weeks, investors have had to juggle a number of market-moving events, some good and some bad, and that has led to notable intra-day and daily swings in trading. This morning, the equity futures are indicating a continuation of the buying that took place during the final session of last week.
Indeed, it has been a balancing act for Wall Street this month. Last week the news was slightly more bearish, with investors unnerved by a few events, most notably the minutes from the Federal Reserve’s July FOMC meeting. That midweek report showed that the Fed leaders were becoming a bit more hawkish with regard to monetary policy, and the central bank may soon begin to taper its bond-buying activity, perhaps as early as next month, but more likely at its late November meeting. That, along with concerns about the coronavirus’ Delta variant strain and what impact it may have on the U.S. economy, disappointing reports on July retail sales and housing starts, geopolitical turmoil in Afghanistan, and slowing growth in China (the world’s second-largest economy), weighted on equities.
The aforementioned worries have been offset by strong labor market data—nonfarm payrolls climbed by 938,000 and 943,000 positions in June and July, respectively, and initial weekly unemployment claims fell to a pandemic-era low of 348,000 in the latest week—and a spectacular second-quarter earnings season. Nearly 90% of the S&P 500 Index either met or exceeded expectations, many of which with record top- and bottom-line gains. Last week the spotlight was on the retailers, and they did not disappoint with the industry giants, including Walmart (WMT), The Home Depot (HD), Target (TGT), and Lowe’s (LOW), beating expectations. The consumer discretionary sector provided the leadership last week and it played a role, along with the high-growth technology and small-cap stocks, in Friday’s rally, which included respective gains of 1.2% and 1.7% for the NASDAQ and the Russell 2000.
The high-growth technology stocks were again in demand at the end of last week. The aforementioned concerns about global growth and the pullback in Treasury yields despite the central bank hinting at soon beginning to taper its asset purchases, had investors rotating out of some of the consumer cyclical areas and into the higher-growth names. The anxieties about global growth, particularly in China, weighed on oil prices and the stocks of the petroleum companies. However, crude quotations are rallying this morning, both here and abroad, with reports showing no new Delta variant cases in China helping sentiment.
Looking ahead, with earnings season now mostly in the record books, we expect the eyes of Wall Street to be on the Federal Reserve’s annual Jackson Hole, Wyoming meeting, which will be held virtually this week. Investors will be looking for clues about when the Fed may begin to start pulling back on bond purchases. The commentary from Fed Chairman Jerome Powell could have a big impact on trading this week. There also will be a number of important reports from the business beat, including existing home sales (due at 10:00 A.M. (EDT) today), new home sales (tomorrow), durable goods orders (Wednesday), and personal income and spending (Friday). The spending data will be closely watched to see how the consumer is faring, especially with the effect of the stimulus checks beginning to run out. Investors also should note the second revision to the June-period GDP estimate will be on released on Thursday at 8:30 A.M. (EDT), along with the latest initial unemployment claims data.
Before the bell, the equity futures, as noted above, are indicating a higher start for the U.S. stock market. So far overseas, the trading has been positive. The main indexes in Asia finished notably higher overnight, while the major European bourses are in the green, as trading moves into the second half of the session on the Continent. As we noted in our market commentary last week, the ample liquidity in the financial system, a significant portion of which is still on the sidelines, has brought the bargain hunters into the market on any signs of selling. The S&P 500 Index has yet to experience a pullback of 5% to 10% this year, which is atypical occurrence for Wall Street. That said, our sense is that with the plethora of news on the economy and the Fed’s Jackson Hole, Wyoming meeting, it may be another uneven week of trading on Wall Street. The CBOE Volatility Index (or VIX) was up 20% last week, even with Friday’s equity market rally. Stay tuned.
– William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
