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Market Update

Where’s the Market Momentum? Stocks Struggle for Direction

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July 19, 2016

(Tuesday Market Open) Where are the markets headed today? In the early going, the three major benchmarks were flagging the flat line in search of direction. Could the better-than-expected housing starts fuel another record day?

Housing starts, reported ahead of the bell by the Commerce Department, jumped 4.8% to 1.19 million annualized rates in June from a 1.14 million decline in May, which was revised downward from 1.16 million. Does this represent a steadier recovery for residential construction?    

Yesterday logged another day of record highs on the Dow Jones Industrials (DJIA) and the S&P 500 (SPX) while the Nasdaq Composite Index (COMP6) closed higher, up 1% for the year. How long can this record-breaking streak continue?

Analysts mostly called Monday a blah day in the markets­­­­—volume was low and the moves were unremarkable, though they still managed to eke out new highs. It marked the seventh straight day that the DJIA climbed to a new crest, up 16.55 points to close at 18,533, higher by only 0.1%. Trading at its best in blue-chips stocks clocked just a 66-point intraday gain.

The SPX trading range was much narrower, inside of an 8-point range, but settling higher by 5.15 at a new peak of 2,166.89, up 0.2%. The COMP6 is lapping in positive waters for the year, but still hasn’t tapped record highs.

Investors appeared to shrug off a weekend marred by U.S. police shootings and a failed coup attempt in Turkey as they entered a heavy week of earnings results, which might be the market’s make-or-break factor, according to Quincy Krosby, a market strategist at Prudential Financial.

“What the market wants to hear at this stage is that, even at the margin, things are getting better,” Krosby said, according to MarketWatch.

S&P 500

FIGURE 1: ANOTHER BREAKTHROUGH!

The S&P 500 (SPX), plotted through the close Monday on the TD Ameritrade thinkorswim platform, set new record highs again. It was a narrow range led by gains in technology, materials and financials. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

The Truth about Coups. It’s something many might not think about until after the fact: What does a coup do to the economic structure of a country? Assistant Professor and economist Erik Meyersson of the Stockholm Institute for Transition Economics has produced what Bloomberg called “the most comprehensive look at this question,” in a 2016 working paper titled “Political Man on Horseback Coups and Development.” The results pick apart autocratic vs. democratic coups, as well as successful vs. failed coups from 1955 to 2001. (Bloomberg says the 2001 cut-off date allows for estimates of the subsequent growth effects of coups.)

The findings in a nutshell: In autocracies, successful coups tend to bolster economic performance, maybe because they replace an incompetent or malevolent leader with one less so, according to the study. It’s a little different in democracies where successful overthrows are tied to lower per capita growth rates on an average of 1- to 1.3-percentage points per year over the next 10 years. “On average, these coups reverse beneficial economic reforms, especially for the financial sector,” according to Bloomberg. “When a coup does overthrow a democratically elected government, it tends to bring a military leader and significant changes in policy, and not usually for the better. There are long-run correlations of such successful coups against democracies with lower investment, lower schooling and higher infant mortality.” For the record, the recent coup attempt in Turkey failed in less than 24 hours.

Don’t Drink and Drive. We all know that, but now Ford (F) appears ready to add a little tequila to its cars, according to CNBC. F and tequila maker Jose Cuervo are probing ways in which the agave byproduct left after tequila is produced could be used to manufacture lighter, ecologically-sensitive car parts. "There are about 400 pounds of plastic on a typical car," Debbie Mielewski, F's senior technical leader in the sustainability research department, told CNBC. “Our job is to find the right place for a green composite like this to help our impact on the planet.” Cuervo already uses some of the agave fibers as compost for its farms while artisans also make crafts and paper from agave remnants, according to CNBC.

What? No Fed News? After last week’s busy schedule of speeches from Federal Reserve members, this is the traditional no-speak week ahead of the July 26-27 meeting. The CME’s FedWatch tool, based on the 30-day Fed Fund futures prices, shows that the likelihood of an interest-rate hike next week might be zilch. But last week’s speeches underscored that some voting members are favoring a rate hike before the year is out. Next week’s post-meeting policy statements might set the stage of what’s ahead.

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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