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Beat the heat! Traders, perhaps bogged down by late Summer heat (or beach traffic), were unable to prop up markets on the the last trading day of August. Stocks started Friday’s session still reeling from the Thursday Presidential pronouncement of more tariffs on China. In fact, that was just one of several negative trade factors that emerged last week amongst them were a failure to meet a Friday negotiation deadline with Canada, a Trump administration rejection of an EU trade proposal, and a threat to leave the World Trade Organization. While trade fears were certainly responsible for halting the equity market's march to new new highs, Friday’s markets saw buyers coming back to the game looking for opportunities. While trade fears have certainly been a factor over the past several months, their effects on equity markets have had less of a longer term effect enabling some of the major indices to reach new all time highs last month. Trade war effects on emerging markets has not been as muted as the sector remains under pressure and is down -7.67% year to date compared to the S&P 500 which is up +9.94% in the same period. What, me worry? The S&P 500 starts the trading week in a solid technical position right on a developing support line at 2900 with positive momentum (see chart 4 in my attached daily chartbook). The VIX index continues to show signs of defiance just above the apathy zone indicating that Thursday’s fears have all but melted away. The VIX will start today’s session around 13.4. The Dow Jones Industrial Average is in a bit of a tight spot having closed out Friday’s session below 26000. The only support for the DOW below Friday's close is the Fibonacci support line at 25611 (see chart 6 in my attached daily chartbook). The Russell 2000 had a new high close on Friday taking it up +13.37% year to date as small company optimism continues to drive the index. The NASDAQ 100 index closed higher in Friday’s session but was unable to post a new high close. The NASDAQ 100 remains the leader of the pack up +19.67% year to date. All of the equity indices remain constructive. Crude Oil managed to hold a key support level at 69.85 capping off several rally sessions. Crude continues to trade up on supply draw downs and dollar strength (see chart 11 in attached daily chartbook). Key numbers in the crude market come tomorrow and Friday in EIA petroleum report and Baker Hughes Rig count. In bonds, the recent pop in yields was halted on Thursday but remain slightly higher at 2.87%. The yield curve steepened a bit on Friday as treasuries sold off into the close leaving the 2/10 curve at 23 basis points.
Both equity and bond traders will attempt to tear themselves out of the late summer haze this week to re-evaluate trade issues, some weekend tweets, and some heavy economic releases. This week’s economic numbers include a number of manufacturing metrics, durable goods orders, and the monthly Bureau of Labor Statistic’s unemployment situation. I have attached the weekly economic and earnings release calendar, which includes expectations along with the dates and times. There is a tropical storm steaming through the gulf, which will certainly keep crude oil and energy traders awake this week as the storm's expected landfall is right in the middle of a critical distribution hub. This week tends to be a light trading week which can certainly add to volatility, not to mention the heat that will continue to grip the Northeast.
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