- Equities pull back; still poised for notable weekly gain. U.S. indexes opened lower this morning, aligning with foreign markets, though global stocks are set to post their biggest weekly gain since mid-July. Yesterday saw strength across S&P 500 (+0.7%) sectors, with real estate (+1.9%) topping the list, followed by telecom and consumer staples; energy (+0.2%) lagged despite a 2% advance in oil ($46.20/barrel) which is holding near yesterday’s highs as traders assess the week’s gains amid news Saudi Arabia may cut production if Iran freezes output. In Asia, a pullback in financial stocks after Thursday’s spike anchored the Nikkei to a 0.3% loss on the day and week; the Shanghai Composite and Hang Seng also slipped 0.3% to close out the week. European shares are also lower across the board midday on profit-taking after stocks hit two-week highs on Thursday. Meanwhile, COMEX gold ($1344/oz.) is near flat after rising every day this week and the 10-year Treasury yield is 0.01% higher at 1.63%.
- The worry continues. We track the American Association of Individual Investors (AAII) sentiment poll, which came in with some very pessimistic readings this week. The bulls were beneath 25% for the first time since the week of the Brexit vote in late June, while bearish sentiment was the highest since the week of the February lows. The difference between the bulls and bears was -13.5%. The last time there was that much of a discrepancy between bulls and bears was on February 11. If you recall, the low close for the year on the S&P 500 was also on February 11–at 19% below current levels.
- Breadth continues to improve. An advance/decline (A/D) line measures how many stocks on a certain exchange advanced versus declined on a day. Technicians run a cumulative tally and measure market breadth using A/D lines. If A/D lines are advancing that is a healthy sign, as it shows there is wide participation to the rally. Yesterday, these A/D lines made new highs: Dow, Nasdaq, Mid Cap, Small Cap, S&P 100, NYSE, NYSE common stock only, and the S&P 500. This many A/D lines breaking out at once is rather rare, but also an extremely healthy sign for equity markets.
- Nasdaq leads again. The Nasdaq leads again and is now up 6.6% in 2016, above both the S&P 500 and Dow, after lagging much of this year. It also made another new all-time high in the process for the second day in a row. This was the 9th new high of 2016, after making 9 new highs last year. Remember, it didn’t make any new highs during the 14 years before that. Technology is one area we like and after underperforming the first six months of this year, tech has been on fire after a better than expected Q2 earnings season. Given technology is the largest component of the S&P 500, this leadership could be a nice sign for the overall equity markets as well.
- Eurozone PMI mixed. Eurozone Purchasing Managers’ Index (PMI) data were released early this morning. Manufacturing PMIs were generally better than expected, especially in Germany, the industrial and export hub of Europe. However, services PMI, while still above the 50 level that demarks contraction and expansion (above 50 indicates expansion), were generally weaker than expected. Overall, the pattern suggests anemic growth throughout the region, not a meaningful reacceleration.
- Baker’s dozen. The week ahead includes 13 appearances from Federal Reserve Bank (Fed) officials as the market gauges the odds of a December rate hike now that the September meeting is over. On the data front, reports on home prices and home sales, durable goods orders and shipments, along with inflation and inflation expectations for August and September are on the docket. While it’s a relatively quiet week for overseas central banks next week, September PMIs in China, along with Japan’s full slate of data for August, will keep traders busy. Early in the week, all the attention will be on the first presidential debate between Hillary Clinton and Donald Trump on Monday, September 26.
- Trump effect. We have been getting an increasing number of questions about what a Trump victory in November might mean for markets, as the race has drawn closer based on recent polls and the first debate approaches. We would say the biggest reason for all the questions is the uncertainty a potential Trump presidency would bring. We try to tackle some of the potential implications on the LPL Research blog later today.
- Markit Mfg. PMI (Sep)
- Mester (Hawk)
- Harker (Hawk)
- Lockhart (Dove)
- Eurozone: Markit Mfg. PMI (Sep)
- Japan: Nikkei Japan Mfg. PMI (Sep)
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