Hello traders
I hope you’ve all had a good week!
Equities have continued their grind higher on relatively light volume often seen at this time of year. The focus has been on earnings as well as the Fed, with the former generally providing reason to be optimistic, and the latter sounding a little more hawkish. The key event today will be the jobs report, which ties in with what the Fed has been explicit in basing their looming rate decision on (taken from Bloomberg):
Economists are forecasting 858K for the July nonfarm payrolls report, with the “whisper number” closer to 700K. Although there are some anomalies contributing to the market’s higher expectations, coming in near or ahead of this number will nonetheless add confidence to the possibility of tightening as early as next month.
On a more cheerful note, here’s a chart showing the recovery in European earnings and the regional stock market. Whilst a lot of investors are anxious about there being any tightening of policy in the near future, trends like these suggest that the stimulus has worked and supported the recovery that now sees the world on a more even keel. In a more stable growth environment, there is no reason to fear a moderation in interest rates.
Of course we could debate the narrative all day, but what we do here is different to how most people approach the markets. Referring to our process, you can see that the Business Cycle Checklist continues to show strength with a full score of +7 again this month. Frankly, this validates the rationale put forward by the Fed in considering a reduction in stimulus consummate with the economic outlook.
This has filtered down to corporate earnings, which are rising as you would expect.
All the while, our Equity Checklist reaffirms the positive outlook for stocks despite short-term speculation and positioning over whether the Fed will scale back its support in September.
One of the golden rules of trading is to “never sell a new high.” Given the fundamental support underlying the technical picture, it would be foolish to bet against a continuation. Then again, the bulls need willing sellers to make a market and add to their longs… I know which side of that trade I’m on!
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Have a great weekend,
James
Disclaimer: For educational purposes only. Even though we do our best to provide reliable data, you should not trade based on this information.
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