Weak week. Last week was one marked with weakness in foreign currencies, weakness in the case for sleep-deprived tweeting (see Tesla), and weakness in the sectors that have done the bulk of the pulling of equity markets in the currently shifting market regime. What was not weak last week were earnings, particularly amongst some retailers. Namely Walmart and Nordstrom, both of which beat on earnings and raised future guidance. Walmart, for its part, helped the Dow Jones Industrial average stand out as the winner amongst the other major equity indices dusting off a bit of the tarnish that had built up in weeks past. Further on the topic of earnings, roughly 90% of S&P500 companies have currently released their quarterly earnings and, on average, they have grown roughly 24.6% year over year (compared to 26.6% in the first quarter) with 79% of companies beating analyst projections. Even though it represents a slight slowdown, it is still quite impressive and it provides a clear justification for American markets’ outperformance (albeit at a tepid pace) of our foreign counterparts this year. Last week was also marked with a clear rotation into more defensive sectors, as reported in my blog on Friday (see “Don’t Worry Be Happy”). This can be evidenced on charts 1 and 2 of my attached chartbook on which Consumer Staples (a hallmark of defensive stocks) has outperformed all other sectors in both the shorter and longer terms.
The S&P ended the week right on a key pivot, or inflection level of 2848/2900. The index was up slightly for the week and will seek closes above these levels in its pursuit of new all time highs of 2872 but will find some resistance at 2863 (see chart 4 in my attached daily chartbook). The Dow Jones Index was the winner last week principally driven by solid earnings of its constituents and a slight abatement of the trade fears that have hampered it in prior weeks. The Dow closed above its critical 25573 Fibonacci line, which is bullish for the index (see chart 6 in my attached daily chartbook). The small cap Russell 2000 index had a volatile week closing up marginally. Despite several failed attempts at breaking above its high water mark set in June, the index remains strong in search of a stimulus to send it back to the top of its broad trading range of 1647 to 1708. The R2K will see some resistance at 1696 above and will need to get some higher-high closes in its quest for some new highs (see chart 7 in my attached daily chartbook). The NASDAQ 100 was the lagger, giving up ground in last week’s trading, which serves as further evidence of the momentum shift from growth to defensive. Remember that the NASDAQ is the superlative index for growth. The index starts the week in the middle of its broad range of 7144 to 7511 (see chart 8 in my attached daily chartbook). All of the S&P500, Dow, Russel, and NASDAQ remain constructive. Ten year treasury yields were down on the week closing right near the lower end of its recent range (that means bond prices went up). The 10 year starts the week at 2.86% and the yield curve, having flattened out further, will start this week at 24 basis points (see charts 18 and 20 in my attached daily chartbook). To put bonds into perspective, the S&P500’s trailing 12 month dividend yield is 1.83% compared to a three month US treasury bill, which currently yields 2.00% (hmm). You can bet that the shape of the yield curve as well as the fate of short term rates will be top-of-mind for traders this week as the Federal Reserve will release its meeting minutes from the last FOMC meeting and Fed Chair Jerome Powell will speak at the Jackson Hole conference, which is a gathering of the world's most powerful monetary policy makers (no chuckles please). Traders will be eagerly seeking some hints on policy in a light economic release week (please refer to the attached economic and earnings calendar for a complete listing of the week’s events). Though earnings season is winding down, we will get some heavies this week, which are bound to have some pull on the markets trying to propel themselves forward from a weak, but still quite capable, leg.