Market Update: Wednesday, August 3, 2016


  • Equities little changed after yesterday’s dip. U.S. markets are modestly higher in early trading following yesterday’s session, which saw the S&P 500 break to the downside out of a sideways consolidation. Though the S&P lost only 0.64%, it marked the bellwether index’s lowest close since July 13; consumer discretionary stocks led the way down, while energy was the only sector to close higher on the day despite a 1.5% slide in WTI crude oil prices. Overnight, the Nikkei fell to a three-week low on continued yen strength, while China’s Shanghai Composite inched up 0.2%. In afternoon trading, European markets are slightly lower, though banks are enjoying a rare day of outperformance and are helping to offset losses in the auto sector. Though slightly higher this morning, the dollar fell to a post-Brexit low yesterday, while the yield on the 10-year Treasury is hovering near 1.54%. Finally, oil is moving up, just below $40/barrel, and COMEX gold is inching down near $1,365/oz.


  • More evidence of a solid labor market. The July ADP employment report indicated the private sector created 179,000 net new jobs in July, exceeding expectations (+170,000) and a slight improvement over June (revised to +176,000 after +172,000 originally reported). This level of job creation, which is a bit better than the three-month average for this reading through June (+163,000) is likely closer to the real trend than the stinker Employment Situation Report in May (+11,000) or the booming number in June (+287,000). Federal Reserve Bank (Fed) officials have said job gains in the range of 125-150,000 per month are sufficient to tighten the labor market and push up wages, suggesting this report gets them a bit closer to a rate hike this fall, although markets remain very skeptical. The U.S. Bureau of Labor Statistics will release its July 2016 Employment Situation Report on Friday, August 5, 2016. The consensus is expecting a 175,000 increase in jobs, a 4.8% unemployment rate, and a 0.3% increase in average hourly earnings.
  • Mixed bag for July auto sales. Domestic auto sales rose 0.7% in July to bring the seasonally adjusted annualized rate to 17.9 million, higher than a year ago and an improvement from June’s 16.7 million. However, year-over-year declines by GM and Ford stoked some concerns that a bright spot for the U.S. economy may be losing some of its luster. Nevertheless, consumer spending overall remains strong, posting its second highest growth rate of the expansion in the second quarter, and may continue to support an industry that has rebounded sharply since the end of the Great Recession.
  • China services PMI growing, but slowing. Overnight, two surveys of Chinese services were released. The official government statistics showed a modest increase in services, with the Purchasing Managers’ Index (PMI) for July rising to 53.9 from June’s 53.7 reading. The Caixin survey, which includes more smaller firms outside of the government sector, showed slower growth, though still positive, falling to 51.7 in July from 52.7 in June. Services are important in China as it seeks to rebalance its economy away from traditional heavy industry and manufacturing.
  • Dow losing streak reaches 7. The Dow’s longest losing streak in nearly a year has left the blue chip index down just 1.4% during that time, one of the shallowest such losing streaks ever. That losing streak has coincided with a five-day win streak for the Nasdaq that ended yesterday which is also notable. As Ryan Detrick noted on our blog yesterday (, over the past two weeks the S&P 500 has been trading within its narrowest range in decades, suggesting this has been one of the most “boring” stock market periods ever. Evidence is mixed on which way stocks will break from here, with technicals (with the exception of seasonality) generally pointing higher and fundamentals more mixed. This mixed picture, along with political uncertainty here and abroad, is consistent with our expectation for a volatile and largely range-bound stock market over the balance of the year.
  • Tech a clear earnings season winner. With 70% of the S&P 500 constituents having reported, among sectors, technology stands out with the biggest upside surprise in the second quarter (more than 6%) and a positive revision to third and fourth quarter estimates since July 1, based on Thomson Reuters data. Technology is the only sector with a positive second half of 2016 revision, while consumer staples is the only sector to see estimates move higher for one quarter (Q4 2016).



  • ADP Employment (July)
  • ISM: Non-Mfg. (July)


  • Challenger Job Cut Announcements (July)
  • Kaplan (Hawk)
  • UK: Bank of England Meeting (Rate Cut Expected)


  • Employment Report (July)
  • Indonesia: GDP (Q2)

Click Here for our detailed Weekly Economic Calendar

Important Disclosures

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

Treasury inflation-protected securities (TIPS) help eliminate inflation risk to your portfolio, as the principal is adjusted semiannually for inflation based on the Consumer Price Index (CPI)—while providing a real rate of return guaranteed by the U.S. government. However, a few things you need to be aware of is that the CPI might not accurately match the general inflation rate; so the principal balance on TIPS may not keep pace with the actual rate of inflation. The real interest yields on TIPS may rise, especially if there is a sharp spike in interest rates. If so, the rate of return on TIPS could lag behind other types of inflation-protected securities, like floating rate notes and T-bills. TIPs do not pay the inflation-adjusted balance until maturity, and the accrued principal on TIPS could decline, if there is deflation.

Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk.

Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.

High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.

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