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Hello? Is Anyone Out There Trading?? Markets Stay Muted Again

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August 24, 2016

(Wednesday Market Open) Another day of blah in trading appears to be in store for investors as the major benchmarks move sideways in the early going. What’s out there to pump some oomph into trading?

Yesterday’s came when Best Buy (BBY) delivered Q2 earnings that solidly beat Wall Street’s expectations and offered an upbeat commentary about consumer spending on wearables and big-ticket appliances. Traders appeared to listen and reacted constructively, bidding up shares better than 19%. That helped put the markets in positive territory that was further buttressed by housing data underscoring strength in a long-awaited sector recovery.

But, alas, like all days of upward trading in recent summer sessions, new records were logged but with very little conviction. All three benchmarks edged up, but it was the Nasdaq Composite Index (COMP6) that registered the biggest gain, at a mere three-tenths of 1%. What does that say about trading verve?

And today’s trading? Looks like the same old, same old in the early going. Markets are higher across the board, but swaying on the flat line is like shuffling feet on the dance floor and calling it rhumba.   

At Tuesday’s close, the Dow Jones Industrials Average (DJIA) took back 17.88 points to stand at 18,547.30, tacking on 0.10%, while the S&P 500 (SPX) regained the point it lost the day before and then some, to end at 2,186.90, up 4.26 points, or 0.20%.

The COMP6 settled the session at 5,260.08, up 15.48, hitting an all-time intraday peak of 5,275.74 in the process, and closing just short of a record finish of 5,262.02.

All this and crude oil closes higher too? Yes, apparently thanks to speculation that Iran may be willing to sit at the negotiation table with other major crude producers to cap oil. But that’s not the first time this supposition has floated around the markets and it has some traders sitting it out, they say. Still, West Texas Intermediate (WTI) still managed to eke out a 1.5% advance to $48.10 a barrel on the New York Mercantile Exchange after knocking lows under $47.00 a barrel. Early trading after reports of added supply to U.S. crude stocks put WTI futures in negative territory in the $47.00-range.

Meanwhile, the slow activity may be the market’s way of putting trading in a wait-and-see mode until Federal Reserve Chair Janet Yellen speaks Friday morning at the annual Kansas City Fed economic summit in Jackson Hole, Wyo. It’s there that traders hope to figure out, reading between the lines, when and if the Fed will raise interest rates. A hike has historically been a magnet to pull the major benchmarks down, though some analysts are now saying that the markets are likely to stay in bull territory no matter what the Fed decides. Who’s ready to make that call?

Certainly not futures traders, who still see very low probability of a hike in September though the odds are changing. Yesterday, the probability stood at a mere 18%; today it’s at 24% for a rate increase in September. That’s not enough to convince most traders, even as another shift in sentiment crosses the 50-50 level in December, at 53.6%, and is at 66.5% by June, edging higher again from yesterday.


S&P 500

FIGURE 1: ANOTHER DAY, ANOTHER CENTIMETER.

The S&P 500 (SPX), plotted through Tuesday's close on the TD Ameritrade thinkorswim platform, edged its way just a bit higher and came close to finding fresh ground on which to land. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Are Traders Fooling Themselves about Fed Hike? Some market watchers and economists think so. Despite a loud, united chorus of hawkish comments from Federal Reserve members who have said repeatedly that September is a so-called “live” meeting at which an interest-rate hike is on the table, traders don’t appear to be listening. The CME’s closely watched FedWatch tool has barely budged off its sentiment that even the tiniest of interest-rate increases is in the works before next year. This, too, even after some Fed members debated the merits of keeping rates so low for too long at the last meeting, according to the minutes.

“I am mystified at what the short-term futures market is looking at,” Carl Tannenbaum, chief economist at Northern Trust in Chicago, told MarketWatch. “It was astonishing to me after the Fed minutes that the odds of a rate hike for both September and December went down.”

Astonishing or not, the numbers are the numbers and the Fed funds say it’s not happening. What does Janet Yellen say? 

Hip, Hip Hooray for New-Home Sales! It was the kind of surprise that these lackluster markets have been craving and the Commerce Department delivered beautifully, according to some analysts. July’s U.S. new-home sales pitched to their highest peak in nearly eight years with a hefty 12.4% jump to a seasonally adjusted annual rate of 654,000, Commerce said.

“It’s a boost to confidence that housing is picking up the slack where business investment has failed considerably,” Karyn Cavanaugh, a senior market strategist at Voya Financial, told MarketWatch. “With housing being a consumer’s No. 1 asset, you figure they need to furnish it, landscape it, go down to the home improvement store—the magnitude of all that shows that confidence is good.”

That, some analysts say, coupled with unanticipated double-digit growth in profit (up 69%) and sales (higher by 23.5%) in Q2 at Toll Brothers (TOL), builder of custom and more higher-cost homes, may fortify a U.S. economy that is sputtering notably along amid an ultra-low interest-rate environment. Is this the new “normal”?

Speaking of Data Points… Existing-home sales results out later today by the National Association of Realtors will offer another look into the strength—or not--of the housing market, considered key to any economic recovery, some analysts say. June’s results set the bar relatively high, but some analysts are still expecting a good showing nonetheless. The consensus calls for a dip from June to 5.51 million in annualized sales, still considered robust.

There’s a caveat though, and that’s mortgage applications, which tumbled 2.1% in the week that ended Aug. 19, according to the Mortgage Bankers Association this morning. That follows a string of declines in the last six weeks. How many people are buying homes without mortgages?

Good Trading,

JJ

@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR

Source: Briefing.com

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