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Market Update

Hold on! Dow Opens in Triple Digits, S&P Advances as Brexit Fears Settle

Print
June 29, 2016

(Wednesday Market Open) Stocks go up and stocks go down, and this week we’ve seen sharp swings in both directions. What drove Tuesday’s market mania to the upside and is it behind what’s powering the markets forward today? Moreover, is it a keeper?

The Brexit bargain hunting began in earnest yesterday after two straight sessions of mass exodus, boosting all three major benchmarks significantly higher at the close. The gains were palatable all right, but not enough to recover the losses from the duo ditching days.

The Dow Jones Industrials (DJIA) added 269 points, much of it in the last hour of trading, to close at 17,409. That recouped Monday’s 260-point loss with a little leg room. The S&P 500 (SPX) added 35 points to push it to 2,036, with all 10 sectors trading to the upside. Health, technology and energy sectors led the way, and even the usually battered materials sector kicked marginally higher. Both DJIA and SPX skated below their 200-day moving averages, key technical support levels, on Monday that had some traders worried. Where can SPX go today?

The Nasdaq Composite Index (COMP6) salvaged more, adding 97 points to settle at 4,691 but still not enough to cover Monday’s 113 slide.

As the markets surged, volatility took a back seat and the VIX index, a widely-followed metric of market fear, pulled back below 19 after rising above 25 Monday for the first time since mid-February. Is that what calmed the markets?

Crude-oil prices also got back in the game, closing higher at $48.11 and heading to the upside again today. Alas, not all was so rosy. The yield on a 10-year Treasury note stood still at 1.46%, according to the Treasury Department. 

S&P 500

FIGURE 1: THE STRUGGLE BACK.

The S&P 500 (SPX), plotted through Tuesday's close on the TD Ameritrade thinkorswim platform, is back in the business of finding new support levels after advancing 1.8% on the session. Is 2,050 the new black? Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

What’s Up with the Consumer? Good question. The Conference Board says we spenders are feeling the most confident we have since October, according to its consumer index that measures current conditions and the outlook. The index rose to 98 in June from 92.4 in May in what many analysts consider a meaningful bounce. We’re also pretty upbeat about the near future too, according to the Conference Board. But that consumer confidence doesn’t appear to be translating into consumer spending, according to the Commerce Department. Its report yesterday revealed that consumer spending rose by an anemic 1.5% annual pace from January through March. That’s the slowest in two years. Why are we feeling confident about the economy but still holding the purse strings pretty tightly?

Mortgages Rates Drop Again. For homeowners looking to buy or refinance, the Brexit vote looks like it might have been a good thing. How does that work? The uncertainty it created pushed Treasury rates down, which in turn knocked mortgage rates lower in a historically loose correlation between the two. The average 30-year fixed-rate mortgages inched lower yesterday to a three-year trough of 3.75% from 3.76% in the preceding week, according to the Mortgage Bankers Association. NerdWallet.com says they’re at 3.63% today. Good news, right? Maybe, but it’s not putting any oomph in the mortgage market index. The MBA’s measure of mortgage loan application volume dropped 2.6% last week, wiping out most of the 2.9% gain the week before. Mortgage applications to buy a home tumbled 3% while loans to refinance one were lower by 2% from the previous week. Are banks being too stingy with loans or is housing inventory too tight?

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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