Last week’s performance of the Dow was the worst since March, dropping 234 pts. But yesterday, even in the aftermath of the weekend’s terrible turmoil in Charlottesville and the associated political wrath, the Dow bounced upward 135 pts. That rebound is more than half the prior week’s loss, which leaves the market charts in some disarray. As a result, the Market Light moves to Orange: Cautious and Deteriorating. Today’s mild performance (currently up 11 pts) gives no indication that a plummet is near at hand. But as we noted last week, we are entering the dicey time of year, stocks are essentially at all-time highs, and sentiment has so far been able to ignore much international background noise.
However, there is reason to believe that the market will continue to swing along pretty imperviously to the background sounds – until they become persistent drumming and can no longer be ignored. First, North Korea seems a little less willing to shoot its rockets at the US territory of Guam. That is pretty good news! More good news is that Retail Sales continue to pant heartily. According to Bloomberg News, “U.S. retail sales advanced in July by the most this year, with widespread gains from department stores to building materials outlets that signal a robust start to consumer spending in the third quarter …. Americans spent more freely in July and upward revisions to sales in the prior two months show strong hiring, limited inflation and low borrowing costs are improving purchasing power. The acceleration bodes well for consumption, which accounts for about 70 percent of the economy.”
It would be hard to beat that summation for continuing economic strength. About the only downside is that such news is likely to be viewed by the Federal Reserve Board as a sign that an increase in interest rates is on the horizon – most probably in December if not earlier.
Another factor on the plus side for consumers is that the price of crude oil has slipped slightly. It is currently trading below $48 after briefly touching $50 last month. Most of the softness is despite a seven-week decline in inventories (which would normally imply tightening supply); what has incentivized the price decline is the projected production from US shale sands: it is forecast to jump to about 6.15 million barrels per day in September. Strong consumer spending and low transportation costs seems like a pretty healthy combo pack.
This week’s Relative Strength leaders include Rare Earth Metals (REMX), Base Metals (DBB), Brazil (EWZ), and Financials (XLF). Weaker ones saw Oil & Gas Services (XES), Natural Gas (FCG), Livestock (COW), and Pharmaceuticals (XPH).
The Technical Tea Leaves see nothing new worthy of reporting.