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Sloppy Finish Could Sap Stocks’ Weekly Gains

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August 14, 2015

Weekly gains for U.S. stocks were in jeopardy given Friday’s sloppy start. The major averages struggled to find a definitive direction as Wall Street chewed over largely tame wholesale inflation data, falling oil prices, and mixed overseas stock action. Asian markets mostly gained, led by a jump in China even as Beijing authorities let their currency rise against the dollar for the first time this week. European stock averages fell after gross domestic product in the 19-nation euro-zone rose 0.3% in Q2, missing industry forecasts that showed Q1's 0.4% pace would be maintained.

At the start of trading, the S&P 500 (SPX) was on track to gain 0.3% for the week, while the Dow Jones Industrial Average ($DJI) held a 0.2% weekly rise. The NASDAQ Composite (COMP) was down 0.2% for the week through Thursday’s close.

SPX-holds-support

FIGURE 1: CLOSE QUARTERS.

The broad S&P 500 (SPX) continues to churn in a relatively narrow band. Major support still holds at 2034-55. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Producer-Level Inflation? Not Really. Is this the low-inflation cover that could limit Federal Reserve interest rate moves? U.S. producer prices moderated in July, rising a seasonally adjusted 0.2% after a 0.4% gain in the prior month. Excluding the volatile categories of trade margins, food and energy, core wholesale prices rose 0.2% after a 0.3% gain in June. Over the past 12 months, producer prices are 0.8% lower. The core rate has risen 0.9% over the last 12 months, below the Fed’s “worry” range. Every slice of data feeds the debate surrounding Fed interest rate-hike timing. Currency volatility this week dampened some expectations for a Fed rate hike as soon as next month, but a slight majority of economists still think the central bank will pull the trigger on a hike in September for the first time since 2006. July industrial production data also hits today. Plus, the University of Michigan’s consumer sentiment index is estimated to have dipped to 92.8 in August, according to Street analysts, down from 93.1 last month.

Oil: Fresh 6-Year Low. U.S.-traded crude oil dropped to a more-than-six-year low Friday, its new leg down driven by escalating concerns Chinese demand will slow following the yuan’s devaluation. Crude futures for delivery in September traded as low as $41.35, a level seen last in March 2009. Oil prices are on track for a weekly slide of more than 4%. China matters, sure, but the primary factor pressuring prices is the supply glut. Earlier in the week, U.S. crude-oil stockpiles declined for the third-straight week but were not reduced as aggressively as industry analysts had calculated. Later today, Baker Hughes will publish the latest U.S. oil drilling rig count, which many see as a proxy for activity in the closely watched U.S. shale industry.

JCP: A Retail Revenue Beat. Troubled retailer J.C. Penney (JCP) achieved Street-beating revenue in its Q2, a feat that few retailers could claim for this reporting round. The department store chain’s progress has barely edged it away from financial collapse but it is moving in the right direction. In response, shares were up some 5% in pre-market trading. The retailer reported a narrower loss and better-than-expected sales growth on strength in its Sephora cosmetics division. Overall, Penney's loss narrowed to $0.45 per share compared to a loss of $0.56 per share a year earlier. Analysts polled by Thomson Reuters had expected a loss of $0.48. Sales rose 2.7% to $2.88 billion, better than analysts' forecast of $2.86 billion.

Good trading,
JJ
@TDAJJKinahan

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