Market’s Bi-Polar nature this week we clearly evident as prices set records both for up and down days. Will the markets continue higher, or will they take out lows made earlier this week? Get my take on current market price action in this week’s round-up.
MARKET SOUND BITES:
The bi-polar nature of the markets was clearly evident this week. Stocks closed slightly lower for the week after recovering from the biggest sell-off in nearly two years. The S&P neared correction territory (down over 10%) on Monday morning, when it fell as much as 9.71% from its intraday high in mid-January; around the same time, the Nasdaq was down 15.81% from its peak, after entering a correction the previous Friday. Even more pronounced were the swings in VIX, Wall Street’s so-called fear gauge, which briefly spiked Monday to 65.73, its highest level since late March 2020, before falling back to end the week at 20.69. Short covering—or the need to hedge bets that stocks would go down further—seemed to help stocks move off their lows Monday afternoon, and stock buybacks also seemed to provide support. A big part of the market overreaction this past week was a combination of very high valuations, weaker summer market liquidity and the reverse carry Japanese Yen unwind.
In earnings calls, several major companies reported signs of weakening consumer demand. Airbnb, Marriott, Hilton, Delta, United, and Disney all reported softer travel demand, while Yum! Brands referenced slowing sales at its KFC and Pizza Hut franchises. On a brighter note, the ISM Index bounced back from a contractionary 48.8 in June—its lowest reading in over three years—to 51.4. A reassuring drop in weekly jobless claims on Thursday seemed partly responsible for a bounce-back rally, with the S&P 500 scoring its best daily gain since November 2022. Weekly claims fell to 233,000 from an upwardly revised 250,000, although the number of continuing claims rose slightly, by 6,000, to 1.875 million. The 3-month average of jobs is 170,000 which is around where it was pre-pandemic.
As fears over a weakening labor market appeared to wane, the yield on the benchmark 10-year Treasury increased over 20 bps for the week back to 3.94%. Futures markets are pricing in a 50 bps rate cut this coming Sept Fed mtg and another50 bps by end of year.
In Europe, retail sales volumes in the eurozone unexpectedly declined 0.3% sequentially in June after increasing 0.1% in May while German industrial output in June rose 1.4% sequentially and industrial orders increased by 3.9% on a seasonally and calendar-adjusted basis.
Japan’s stock markets started the week with the most severe one-day sell-off since 1987 (over 12.4%), driven by a rebounding yen on the back of the Bank of Japan’s (BoJ’s) hawkish turn at its July meeting, where it both raised interest rates and detailed plans to taper its bond purchases. Japan’s market volatility, which reverberated globally, was soothed by dovish comments from BoJ Deputy Governor Uchida, who said the central bank will not raise interest rates when markets are unstable, reducing the likelihood of a near-term hike.
Chinese stocks retreated as a stronger-than-expected increase in consumer prices failed to offset concerns about deflationary pressures. China’s CPI rose 0.5% in July from a year earlier, from June’s 0.2% rise. Chinese global survey of services activity edged up to a better-than-forecast 52.1 in July from 51.2 in June, marking its 19th straight month of expansion, according to Reuters. China is still faced with uneven growth as the property slump has hit domestic consumption even as manufacturing and exports have showed strength. Imports exceeded forecasts in July, rising 7.2% from a year earlier, up from a 2.3% decline in June while exports rose a lower-than-expected 7% in July due to sluggish demand.
Enjoy this week’s round-up;
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Trade Smart !
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