US equity markets managed a mixed performance yesterday after two successive days of meaningful gains in which both the Dow Industrials and S&P 500 hit record highs. Though the Nasdaq trails in relative performance, it too has traded sharply higher this week allowing for a close yesterday, that leaves it 4% off its 52-week high. The S&P 500 closed flat while the Dow Industrials nudged 0.13% higher (thanks to Microsoft) and the Nasdaq slipped 0.34%. Yesterday’s pause in price movement was importantly coupled with a downtick in turnover. Volume on the New York Stock Exchange fell 14.44%. The Nasdaq also saw volume contract (-10.61%). The lack of price action on a day where volume contracted is an indication that institutional selling was not a factor on the day. Equity markets are in a confirmed uptrend and I suspect that though we may give some recent gains back - the trend remains higher.
I outlined the reasons why I think stocks have more room to run, despite the recent rally: Brexit didn’t spark a global financial crisis, the U.S. added way more jobs in July than expected, the earnings recession could soon be ending and extremely low bond yields make stocks look less expensive.” More on CNN Money: “Stock market enthusiasm enters ‘danger’ zone.”
Sector outperformance by transportation and utilities compliments a day where crude lost nearly 4% as a result of an unexpectedly mixed EIA Petroleum Status Report. The top line of the report, Crude Oil Inventories, did reflect contraction of 2.5 million barrels over the previous week but Gasoline Inventories rose 1.2 million barrels and Distillates Inventories rose a relatively dramatic 4.1 million barrels. In short, the good news was a draw on crude but the bad news was that the inventory of finished product expanded and will likely keep some pressure on pricing over the near term.
In other important economic news on the day, the Atlanta Fed Business Inflation Expectations reading came in at +1.7% versus expectations calling for +1.8%. Import/Export prices continued to reflect deflation on a year-over-year basis (Imports -4.8%, Exports - 3.5%) but in both cases the Y/Y comparisons were less dire than expectations. On a M/M basis Import Prices rose 0.2% while Export Prices rose 0.8% - both in line. Today we receive the PPI for June (0.3% expected). Weekly Jobless Claims are expected to clock in at 265K versus last week’s strong showing of 254K. Five Fed officials are expected to speak today as well.
Markets are Telling Us What the Elites Won’t: Life Goes on After Brexit
On Monday, June 27, two trading days after the Brexit referendum results were announced, the FTSE 100 closed at 5918.5. Subsequently, Britain’s most closely watched equity market index has risen a dramatic 697 points or 11.77%, as of yesterday’s close. Further, US equity markets have seemingly rebounded with vigor as well. In that period of time (post Brexit), the S&P 500 has rallied 6.85% to close at a record and the Dow Industrials have notched a gain of 6.9%, closing at a record high on Monday as well. US Treasury markets are speaking to the same theme. The US 10-year yield has risen 12.9% in the period to close on Tuesday at 1.5130%. Today we have seen markets tack meaningful gains onto those metrics and in the process establish all-time highs. Read my complete analysis for Equities.com published July 13, 2016.