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July 05, 2019

Independence Rally!

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<span id="hs_cos_wrapper_name" class="hs_cos_wrapper hs_cos_wrapper_meta_field hs_cos_wrapper_type_text" style="" data-hs-cos-general-type="meta_field" data-hs-cos-type="text" >Independence Rally!</span>

Independence rally!  Stocks rallied to new highs on Wednesday, independent of unsupportive macro data.  High spirits were aplenty on Wednesday as stocks surged in an abbreviated session… oh and so did bonds?

 

MY TWO CENTS

 

  1.  Animal spirits, exuberance… blind optimism… all of the above.  On Wednesday stocks headed to new all time highs amidst nothing but weak data and a global economic slowdown.  Sure a restart to trade talks is positive, but marginally, as the market had already baked in a good result to the ongoing, and costly trade war.  Then there are the central bankers.  Led by the US Fed, that started its slow but vocal dovish pivot last Christmas, central bankers in all of the major global economies are shifting their tones as well.  Let’s be clear: central bankers around the world are worried about a global slowdown, so they might have to ease monetary conditions to avoid a global recession.  I am not sure I see the optimism in that, but the market is the ultimate arbiter of all available information and the market is now betting that the Fed and its foreign counterparts will engineer a soft landing.  Today’s monthly jobs report will certainly be eyed carefully by traders.  A soft number will all but seal the fate of lower rates while a stronger than expected number may put cuts on hold… and add a lot of confusion to the markets.

 

  1.  Trade still counts.  Samsung is the world’s largest manufacturer of semiconductors, smartphones, and smartphone screens.  That being said, smartphones though they are becoming more and more a necessity, are still somewhat of a luxury item.  When things get tough, consumers tend to put off discretionary purchases.  In the case of mobile phones, perhaps consumers might delay trading up to the latest model.  Samsung’s health is very closely tied to not only the health of global consumption, but also a very complex supply chain of international trade (they provide parts for many other cell phone manufacturers).  WHILE YOU SLEPT, Samsung announced earnings which were -56% lower than last quarter’s.  Re-read that last statement.  Samsung’s announced reason?  Global slowdown and trade tensions.

 

THE MARKETS

 

Stocks soared to new highs on Wednesday as the likelihood for easy monetary policy increased globally.  The S&P 500 climbed by +0.77%, the Dow Jones Industrial Average jumped by +0.67%, the Russell 2000 traded up by +0.74%, and the NASDAQ 100 advanced by +0.74%.  Bonds rallied putting in their vote for easier monetary policy leaving 10-year treasury yields down by -3 basis points to 1.94%.  For those who pay attention, the last time 10-year yields were this low was November 8th, 2016.  Wanna guess what day that was?  Election day.  Bonds yields surged on the following day, opening at 1.85% and closing at 2.05%.

 

WHAT’S NXT

 

- The closely watched monthly Employment Situation is due to be released this morning from the Bureau of Labor Statistics.  Non-farm Payrolls are expected to have increased by +160k compared to last month’s soft +75k increase.  The Unemployment Rate is expected to remain at 3.6% and Average Hourly Earnings are expected to have grown bringing the year over year rate to +3.2% from +3.1%.  The good news is that earnings are growing faster than inflation.  These numbers will be very closely watched.

- Next week’s numbers include JOLTS Job Openings, Producer Price Index, and Consumer Price Index.  On Wednesday, the Fed will release the minutes from its June FOMC meeting, and they will be very, very closely scrutinized.

- Corporate earnings will start to pick up next week but the real earnings season begins on the 18th when the first of the big banks announce earnings.

Enjoy the holiday weekend.

daily chartbook 2019-07-05