Courtesy of Blain.
We wrote in last week’s recap: “One would think the indexes are a bit extended short term”. And indeed, a rest and consolidation occurred as both the S&P 500 and NASDAQ pulled back to their 20 day moving averages. (The Russell 2000 did as well but it was not overextended going into the week)
Friday President Trump said the U.S. had tariffs ready to go on another $267 billion in Chinese goods, on top of tariffs on $200 billion in goods the administration is now preparing.
“I think investors were hopeful that we clearly made progress with Mexico [on trade] and Canada seemed to be within a line of sight…and I think investors were saying ‘Maybe we won’t get the fireworks with China and clearly there is disappointment, right now,” said Diane Jaffee, senior portfolio manager at TCW.
Keep an eye on emerging markets – we’ve seen rustling out of Turkey, Argentina, South Africa, etc – it’s still pretty quiet out there but in 1997 a market dislocation hit due to an event in Thailand of all places so the general weakness we are seeing in many emerging markets won’t matter – until it does.
A team led by Marko Kolanovic, global head of macro quantitative and derivatives strategy at J.P. Morgan, blamed the weakness in global markets to a “risk-off” mode with investors seeking to minimize their exposure to risky assets such as stocks amid concerns about contagion from emerging markets as well as the impact of the stronger U.S. dollar and higher interest rates.
The difference between U.S. and emerging-market stock performance this year has been stark. According to Bespoke Investment Group, the divergence between emerging markets and the U.S. stands at a 14-year high, and while this kind of extremity has in the past been followed by a period of mean revision, Deutsche Bank recently wrote that the problems in emerging markets are so severe that a rebound may not be in the cards.
Amazon followed Apple into trillion dollar market cap status mid week.
For the week the S&P 500 fell 1% while the NASDAQ dropped 2.6%. But keep in mind the NASDAQ rose 2.1% just the week prior.
This is the week the economic data is quite interesting. First off ISM Manufacturing jumped to a 14-year high of 61.3 last month from 58.1 in July. Economists had forecast 57.9; any reading of 50 indicates expansion. Meanwhile ISM Services rose to 58.5 from 55.7 in the previous month – another strong reading.
August’s employment data came in at 201,000 jobs gained, and a 3.9% unemployment rate. The yearly rate of pay increases climbed to 2.9% from 2.7%, marking the highest level since June 2009.
“The interpretation of that [jobs report] is that inflation is potentially building up in the economy, driven by the wage growth,” said Ernesto Ramos, head of equities for BMO Global Asset Management. “It’s the strength of the wage-growth number that’s driving us down today. I think this bakes in the idea of four rate hikes this year, which is not good for the market. Overall this gives a higher probability of more rate hikes over the coming year,” he told MarketWatch.
Here is the 5 day weekly “intraday” chart of the S&P 500 … via Jill Mislinski.
The week ahead…
August readings on producer prices and consumer prices will be released on Wednesday and Thursday, while retail sales data hits later in the week. Emerging markets, trade wars, and Elon Musk should provide some entertainment as well.
Index charts:
Short term: Both indexes pulled back to their 20 day moving averages. The NASDAQ pulled EXACTLY back to a support trend line as well.
This Russell 2000 had not quite surged like the other 2 indexes and is now back to the “double top”.
The NYSE McClellan Oscillator took a significant hit this past week and is now in the red. When that happens it’s usually a good time with those with short term trading horizons to be more cautious near term.
Long term: Still very positive for the “buy and never sell” crowd.
Charts of interest / Big Movers:
Tuesday, Workday (WDAY) slumped 9.2% after it reported late Tuesday earnings that missed expectations but raised its subscription outlook. The stock had been up 14 of the prior 15 sessions!
Also Tuesday, Sangamo Theraupitcs (SGMO) sank 24% after the company released mixed results from a drug trial.
Twitter (TWTR) had a rough week after it’s CEO Jack Dorsey testified on Capitol Hill about election interference amid concerns that political provocateurs and foreign agents are using social media to manipulate the American public.
Tesla (TSLA) had an interesting Friday. The stock sank 6.3%; the electric-car maker’s chief accounting officer, Dave Morton, resigned on Sept. 4, roughly a month after joining Tesla, according to a regulatory filing. Separately, Chief Executive Elon Musk appeared to smoke marijuana during an interview on “The Joe Rogan Experience” podcast.
Tilray (TLRY) – the “pot stock” had another move up Monday and Tuesday and held it’s ground. Going to be an interesting one to watch when the market pulls back as usually the most speculative stocks get battered.
Have a great week and we’ll see you back here Sunday!
