Stocks Make Gains Ahead of Labor Day Holiday
On lighter trading volume, the U.S. equity markets closed the session higher as festering Ukraine concerns collided with some upbeat economic data. Treasuries were mixed as the domestic docket showed consumer sentiment and Midwest manufacturing activity topped expectations, while a separate release revealed a softer-than-expected read on personal income and spending. Gold was lower, while crude oil prices and the U.S. dollar were higher.
The Dow Jones Industrial Average increased 19 points (0.1%) to 17,098
The S&P 500 Index was 7 points (0.3%) higher at 2,003
The Nasdaq Composite rose 23 points (0.5%) to 4,580
In moderately-light volume, 615 million shares were traded on the NYSE, and 1.3 billion shares changed hands on the Nasdaq
WTI crude oil increased $1.41 to $94.96 per barrel, wholesale gasoline gained $0.03 to $2.62 per gallon
The Bloomberg gold spot price decreased $2.57 to $1,287.08 per ounce
Markets were higher on the week, as the DJIA increased 0.6%, the S&P 500 Index was 0.8% higher and the Nasdaq Composite Index also rose 0.9%.
Personal income and spending miss, while consumer sentiment and manufacturing data tops
Personal income rose 0.2% month-over-month in July, just below the 0.3% gain that economists surveyed by Bloomberg had projected, but June’s 0.4% rise was revised to a 0.5% increase. Personal spending dipped by 0.1% m/m last month, versus expectations of a 0.2% gain, while June’s 0.4% increase was unrevised. The July savings rate as a percentage of disposable income rose to 5.7%, from June’s upwardly revised rate of 5.4%. The PCE Deflator was up 0.1% m/m in July, matching the gain that was expected, and compared to the unrevised 0.2% increase seen in June. Compared to last year, the deflator was 1.6% higher, inline with expectations. Excluding food and energy, the PCE Core Index was up 0.1%, matching expectations, and was 1.5% higher y/y, inline with forecasts.
The final University of Michigan Consumer Sentiment Index was revised higher to 82.5 for August from the preliminary report of 79.2, and exceeding the 80.0 economist estimate. The index was also above July’s 81.8 figure. The stronger-than-expected report came as a slight upward adjustment to the component pertaining to current economic conditions was accompanied by a solid upward revision to the portion regarding the economic outlook. On inflation, the 1-year expectation was revised to 3.2%, from 3.4%, and compared to July’s 3.3% figure, while the 5-year inflation outlook was adjusted to 2.9% from 2.8%, and versus the 2.7% posted in July.
Treasuries were mixed, with the yield on the 2-year note dipping 1 basis point to 0.49%, while the yield on the 10-year note increased 1 bp to 2.34% and the 30-year bond rate was flat at 3.08%.
Please Note: All U.S. markets will be closed on Monday in observance of the Labor Day holiday.
Stocks keep winning streak alive but geopolitical front keeps bulls on alert
Although volume remained light as the summer headed down the home stretch, the equity markets posted their fourth-straight weekly advance, aided by increased optimism of stimulus measures out of Europe and Japan, while U.S. economic sentiment continued to improve. 2Q GDP growth was unexpectedly revised higher to 4.2% and jobless claims surprisingly remained below the 300,000 mark.
Consumer Confidence rose to the highest level since October 2007, complementing Friday’s sentiment report to paint a favorable picture of the consumer’s psyche. However, gains were kept in check by disappointing sales and guidance out of the retail sector, as well as geopolitical headlines, with early week optimism regarding positive peace talks between Russia and Ukraine fading on reports of increased conflict in the region.
While the most recent stock selling appeared eerily reminiscent of earlier pullbacks this year where some concern, in this case geopolitics combined with Fed tightening worries, caused a selloff, helping to wash out overly optimistic sentiment and moving commentators to question whether it was the long-awaited correction. But then, the selling stopped, buyers stepped in, and the market recovered to new highs again.
The resilience of the market has been impressive, but has renewed worries about a melt-up scenario as investors “capitulate in” to the market. The problem with melt-ups, however good they feel while underway, is that they typically end quite painful and abruptly. We remain optimistic about stocks for the foreseeable future, although we would prefer the kind of grind-higher market we’ve experienced recently over a melt-up. We would also welcome pullbacks and even a correction as it would keep sentiment contained; and could elongate the bull market.
Europe stages late-day rally to close in positive territory, Asia mostly lower
The European equity markets finished higher following a late-session advance, showing some resiliency in the face of flared-up Ukraine tensions and a raised terror threat by the U.K. Meanwhile, some lackluster Eurozone economic data may have helped preserve optimism regarding further stimulus measures from the European Central Bank (ECB). Eurozone inflation in August decelerated to a rise of 0.3% y/y, as expected, from 0.4% in July, registering the lowest level since October 2009 and well below the ECB’s target of below but close to 2.0%. The Eurozone unemployment rate came in at 11.5% as expected, remaining at arm’s length of a record high. Separate reports showed German retail sales unexpectedly fell last month and Italy’s 2Q GDP was unrevised at a 0.2% quarter-over-quarter contraction, matching estimates.
Stocks in Asia finished mostly to the downside amid the flare-up in tensions in Ukraine, while traders sifted through a mixed Japanese economic data for July. Japan reported inline consumer price inflation figures and a jump in construction orders, while its retail sales unexpectedly declined, household spending dropped more than estimated and industrial production rose at a smaller-than-anticipated pace.
South Korea showed manufacturing sentiment deteriorated slightly for September and growth of its leading indicators slowed last month, while industrial production increased much more than anticipated for July. Chinese stocks rebounded from some recent weakness, led by technology and defense-related stocks amid local media reports that the government may inject military-research assets into some listed companies, per Bloomberg. India’s markets were closed for a holiday, but the nation reported 2Q GDP growth of 5.7% y/y, up from the 4.6% expansion in 1Q, and compared to the 5.5% increase in output that economists had projected.