Trading The Week: Investors Seek New Peaks
Market strategist and commentators keep warning investors that the markets are overvalued and overbought, but few investors are heading for the exits.
The dearth of volatility, continued low rates, cheap oil, tame inflation and favorable business policies make it hard for investors to heed the warnings.
“Look at the hikers that attempt to conquer Mt. Everest,” said Larry Peruzzi, managing director international trading at Mischler Financial Group. “They are well aware that they could meet perils like a slight slip of the foot or unexpected storm, yet they trudge forward for the glory and euphoria of reaching the top. Investors today are well aware of the risks, and this week the glory of all-time highs as well as outstanding earnings, and a strong employment report made the voyage worth it.”
A remarkable earnings season, which is set up to be the best in seven years where 77% of companies report beating analyst estimates, has only strengthened investor optimism.
Similarly, last week’s June Pending Home Sales, June Personal Spending, July ISM Manufacturing, and June Factory Orders all came in at, or very close to, estimates while price deflator and personal income data were dovish.
Topping all of the economic indicators was Friday’s July employment report. Unemployment dropped to 4.3% as expected and non-farm payrolls added a better than expected 209,000 jobs.
“Average hourly earnings met estimates at +.3% month-on-month, which at a +2.5% year-on-year rate, should NOT ignite any inflation fears,” said Peruzzi.
Although economic indicators have come in strong and steady, the same cannot be said of the current geopolitical environment.
Non-stop headlines of Russian sanctions, North Korean missile tests, the further collapse of Venezuela, and the Trump Administration’s cabinet turnover do not seem strong enough to spook the market, according to Peruzzi.
“Possible new sanctions against Venezuela help lift oil close to $50 a barrel but many US refineries have been fitted, at sizeable cost, to refine Venezuela’s heavy type of crude so look for a fair amount of politicking here,” he said.
With such a rosy economic picture, the market will be keeping its eye on any inflationary pressure that might cause the Federal Reserve to raise rates quick or possibly amplify asset sales.
“We will be listening to speeches by Federal Reserve Governors Bullard, Kashkari, and Dudley next week ahead of the August 16th FOMC meeting minutes,” said Peruzzi. “With global growth, low inflation, low energy prices, and emerging market growth investors will cautiously move forward as we scale the peak.”
|This Week’s U.S. Economic Indicators of Interest:|
|Monday||Gallup US Consumer Spending Measure
Labor Market Conditions Index
4-Week Bill Announcement
3-Month Bill Auction
6-Month Bill Auction
TD Ameritrade IMX
James Bullard Speaks
Neel Kashkari Speaks
|Tuesday||NFIB Small Business Optimism Index
4-Week Bill Auction
3-Yr Note Auction
|Wednesday||MBA Mortgage Applications
Productivity and Costs
EIA Petroleum Status Report
10-Yr Note Auction
|Thursday||Weekly Bill Settlement
Bloomberg Consumer Comfort Index
EIA Natural Gas Report
3-Month Bill Announcement
6-Month Bill Announcement
52-Week Bill Announcement
30-Yr Bond Auction
Fed Balance Sheet
William Dudley Speaks
|Friday||Consumer Price Index
Baker-Hughes Rig Count
Robert Kaplan Speaks
Neel Kashkari Speaks
Market sentiment remains strong as traders see little near-term risk.
Traders continue to grapple with economic, interest rate and geopolitical concerns.
Stocks cling to higher levels while fixed-income securities slide.
Stocks continue to drift higher amid dearth of selling and low volatility.
Storms could cloud traders' appetites and FOMC rate hike resolve.