Market Direction: BULLISH alert
issued 11/10/2016
Last Week Review: While U.S. stocks were
only marginally lower to end the week, they took a rocky path to get there.
U.S. large-cap stocks fell by nearly 2%, posting their largest declines since
September 2016, on Wednesday as investors became increasingly concerned that
turnover and turmoil within the Trump administration will prevent
implementation of some (or all) of its pro-growth policies. However, stocks
stabilized on Thursday and rallied on Friday. After months of low stock market
volatility despite higher uncertainty about economic policies, investors
shouldn't be surprised by the return to a more volatile market.
If anyone needed a reminder of just how much the market has spoiled investors of late, look no further than last week. Stocks dropped 1.8% on Wednesday – the largest daily decline in 175 trading days – in response to increasing turmoil in Washington. The S&P 500 is up 35.9% over the past three years, and Wednesday's selloff left the U.S. market a whopping 1.9% off of the all-time high (reached on May 15), perspective that seemed to be lost in the headline reaction.
If anyone needed a reminder of just how much the market has spoiled investors of late, look no further than last week. Stocks dropped 1.8% on Wednesday – the largest daily decline in 175 trading days – in response to increasing turmoil in Washington. The S&P 500 is up 35.9% over the past three years, and Wednesday's selloff left the U.S. market a whopping 1.9% off of the all-time high (reached on May 15), perspective that seemed to be lost in the headline reaction.
One
headline referred to "…bracing for a massive stock-market selloff,"
and the term "Trump Slump" emerged. It appeared as if some were
willing to pronounce the rally's time of death after one day of weakness. As is
always the case, a wider lens is useful. U.S. equities gained a combined 1.0%
on Thursday and Friday, reflecting a more balanced tone. So where do we go from
here?
How
the market finished last week, the S&P 500 down 0.4%, the Nasdaq down 0.6%,
and the Dow down 0.4%.
This Week: It looks like we will have a
decent amount of data points to keep an eye on next week and there are a couple
important ones that I’ve highlighted above. The housing data will not be as
important as the Second Estimate for Q1 GDP on Friday, but given the recent
misses on housing data I think investors might pay more attention this round.
Back on April 28th we got our first read on Q1 GDP and it come in at
a paltry 0.7% so I think market participants will likely be expecting an upward
revision next Friday.
The
major event of the week will be Thursday’s OPEC meeting. Having seen the oil
price rally 14% from its May low it may be hard for the cartel to decide on
production cuts big enough to appease the market. It looks like the
post-February 2016 oil rally is at a major crossroads. Other pieces of data to
watch will be Tuesday’s eurozone PMI update, along with the US ones during the
afternoon of the same day and durable goods orders on Friday.
Economic
Calendar: PMI Composite Flash (5/24), FOMC Minutes (5/24), International Trade
in Goods (5/25), Durable Goods (5/26) GDP (5/26)
Some of the major earnings announcements on deck: AZO,
TOL, DLTR, LOW, ULTA.
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