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Home on the Range? Stock Market Stuck as Rate Worries Linger

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May 28, 2015

Christmas came early? But that’s not necessarily a bullish nod. The major index charts are nearly equally striped red and green—one day up, one day down. We rallied right back Wednesday after Tuesday spooked the bulls pretty good and today? Another lower open. I don’t see much to change this zig-zag, range-bound action as long as Wall Street hunts for some clarity on interest rates.  

Now, in reading between the lines, bulls will like the fact that technology and health care led Wednesday’s snapback. Bears may notice that despite a reversal in broader market fortunes from the start of this holiday-shortened week, the expected sell-off in bonds did not materialize on Wednesday. So upward pressure on market rates continues—let’s call that a broad-market confidence check. And another gut check? Greek debt resolution optimism from earlier in the week faded overnight when additional European officials said they can’t share the same high hopes for a quick and orderly fix to what ails Greece.

FIGURE 1: BREAKOUT BREWING?

Range-bound trade has persisted for the SPX, especially since April 1. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

GDP on Friday. There’s a potential for some late-day market position-squaring ahead of Friday’s GDP release. The second and third estimates of GDP for Q1 are currently scheduled for release on May 29 and June 24,, respectively. Right now, those estimates are expected to show that GDP contracted in Q1. But Wall Street continues to question the residual from seasonal factors on that quarter and isn’t quite sure what the true picture of U.S. GDP looks like.

Mixed Bag for Retailers. And so the theme continues, with retailers potentially beating the Street view with one ledger line but missing with another. Teen shop Abercrombie & Fitch (ANF) recorded a larger-than-expected quarterly loss for its latest reporting period but same-store sales fell less than anticipated, eliciting an exhale among shareholders. ANF initially fell in premarket trading then turned higher. Costco Wholesale (COST) reported quarterly revenue that missed Wall Street’s forecasts, though profit topped expectations.

Coming Next Week. All eyes again turn to the Friday release of monthly jobs data. This time May data is on tap. The MarketWatch consensus calls for a gain of 218,000 payrolls this month, nearly on pace with the 223,000 new jobs reported for April. The unemployment rate is expected to hold at 5.4%, while average hourly earnings growth could heat up to 0.3% from April’s 0.1% gain.

Good trading,
JJ
@TDAJJKinahan

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