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SPX and Crude Holding Hands Again as Both Reach Fresh Peaks

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June 8, 2016

(Wednesday Market Open) The markets edged higher in the early going, riding off yesterday’s upward momentum amid higher oil prices. Can it hold throughout the day?

There appears to be very little catalyst to move them in either direction. The monthly JOLTS results, the government’s Job Openings and Labor Turnover Survey that measures the number of employment opportunities, excluding the farm industry, is on the dockets today. Will it shock the markets like Friday’s jobs numbers with a weak number or fuel them with one above expectations? The outlook is for a gain of 5.78 million to 5.86 million openings. After Friday’s disappointment, is anyone sitting on the edge of their seats waiting for JOLTS?

Yesterday started out strong, but ended without a boom as the three major benchmarks closed the session far off their intraday highs. The Dow Jones Industrials (DJIA) inched up to settle at 17,938.28, its highest close since April 27. The S&P 500 (SPX) added 2.72 points, or 0.1%, to finish at 2,112.13, a place it hasn’t seen since last July 20. But the Nasdaq Composite Index (COMP6) gave back 6.96 points, or 0.1%, to 4961.75, and is still down so far in 2016.

Crude oil prices also got a big boost, with West Texas Intermediate (CLN6) ending the session at $50.36, a peak it also hasn’t seen since last July. That’s a near 100% gain in prices since crude bottomed at 13-year lows earlier this year. And they appear to be on an upward trajectory today after the Energy Information Administration said late yesterday that production tumbled by 250,000 barrels a day last month compared to the April numbers. And yes, prices at the pump are rising too.

Energy stocks lifted the SPX Monday in what appears to be a continuation of the correlation between it and crude. Earlier this year, we saw a 92% to 93% link in movement between the two and it now looks like there’s a 75% connection. SPX also has now gone 42 straight trading sessions without a loss of more than 1%.

S&P 500

FIGURE 1: FLIRTING WITH FRESH HIGHS.

The S&P 500 (SPX), plotted through Tuesday's close on the TD Ameritrade thinkorswim platform, is within striking distance of pushing through levels it hasn’t seen since July 20 of last year. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Interest-Rate Hike Muted. Any thoughts of an uptick in interest rates before the end of the year appear to have been dashed by those not-so-pretty economic numbers, such as Friday’s jobs stats. The CME Group Fed Funds tool, which tracks options on changes in U.S. monetary policy, has seen its prospects for a June trek higher crash to a mere 2% today. Last week, it was at 32%. July’s expectations fell to only 23% from 27% yesterday and compared with better than 60% a little more than a week ago. The biggest change is when futures advance above 50% for an increase, which is now pointing to a December upswing by a hefty 66, off a point since yesterday, according to CME. That, of course, is after the elections, which will clear up the uncertainty of who’s running the U.S. of A.

Home Buying Lifts. Mortgage application volumes surged 9.3% in May in tandem with a drop in long-term interest rates, according to the Mortgage Bankers Association. The hike was led by new-mortgage applications, which were up 14%, while refinancing loans rose 7%, all seasonally adjusted. May’s new-home loan increases are bucking a downward trend: they are lower by 19% in the past four weeks and 6% on a year-over-year basis. Average interest rates on 30-year fixed-rate loans were at 3.83%, down from 3.85%.

Fashionable Active Apparel. Have we given up on the so-called athleisure look? Lululemon (LULU) turned in a per-share profit of $0.30, missing analyst expectations by a penny, and forecast a second-quarter profit of $0.36 to $0.38 a share that is short of Wall Street’s projections of $0.39 a share. That, coupled with the recent bankruptcy shutdown of Sport’s Authority, have some analysts suggesting that we’re tired of wearing active apparel outside the gym.  

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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