Market Update: Monday, July 2, 2018

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Daily Insights

  • Shareholder payouts to generate interest in financials? Financials broke a record 13-session losing streak last Thursday with help from prospects for more capital to be returned to shareholders. Thursday’s results from the Federal Reserve’s capital plan reviews (including last week’s stress test) offered some good news. A total of 34 (of 35) institutions subjected to this process passed the review, with several having conditions attached and one–not totally unexpected–receiving an objection. An overall positive result, which was initially well received by market participants, was followed by a wave of dividend hikes and share repurchase announcements. After a disappointing first half, we expect the sector–the topic of our latest blog due out later today–to perform better over the rest of the year, and for increasing dividends and share repurchases to help garner renewed interest.
  • China growth softens. While the ongoing trade dispute is stealing all the headlines, the traditional economic calendar is worth watching. Over the weekend, weakness in China’s exports (likely unrelated to tariffs) and manufacturing has added to existing pressure on the Shanghai Composite, which already entered bear market territory and fell another 2.5% overnight. The official China Purchasing Managers’ Index gauge fell to 51.5 in June, down from 51.9 in May but remains in expansionary territory. Slower growth (+6.5% consensus gross domestic product) was largely anticipated this year, leaving trade policy as the key to China’s market outlook.
  • Holiday week promises big data, small volumes. The shortened holiday week will likely see below-average trading volume with traders heading to beaches and barbecues. But that does not mean the economic calendar is quiet. In fact, quite the opposite with the ISM manufacturing data due out today (consensus 58.5) and the jobs report on Friday (consensus 190K, 3.8% unemployment rate, +2.8% wage growth). In addition, tariffs on $34 billion of Chinese goods kick in this Friday (July 6), which Beijing has indicated it will match. View our Weekly Global Economic & Policy Calendar on the House of Charts.
  • A good sign for bulls? The S&P 500 Index managed to finish in the green in June, while also bucking the historically weak trend and closing green in May as well. This could be good news for the bulls, as when stocks are higher each of these two historically troublesome months, the returns the final six months of the year were actually quite impressive. In fact, since 1950, this rare event happened 22 other times, and the final six months closed green 19 times with an average return of +7.5%. We take a closer look at this bullish phenomenon on the LPL Research blog.

 

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Click Here for our detailed Weekly Economic Calendar

Monday

  • Markit Mfg. PMI (Jun)
  • Construction Spending (May)
  • ISM Mfg. (Jun)
  • Eurozone: Markit Mfg. PMI (Jun)
  • Russia: GDP (Q1)

Tuesday

  • Factory Orders (May)
  • Durable Goods Orders (May)
  • Cap Goods Orders (May)

Wednesday

Thursday

Friday

  • Change in Nonfarm Payrolls (Jun)
  • Change in Mfg. Payrolls (Jun)
  • Unemployment Rate (Jun)
  • Trade Balance (May)

 

IMPORTANT DISCLOSURES

* Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

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Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

All performance referenced is historical and is no guarantee of future results.

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