On balance .. pretty good!

My weekly market review 8/8/21

Maybe a 7 out of 10 for the stock market last week. Much of this grade was due to the “Goldilocks” jobs report that came out on Friday morning. Department of Labor stats showed that U.S. employers added about 943k jobs in July, well above the average estimate of about 845k. It was the biggest monthly job gain since the August 2020 bounce as more Americans went back to work last month amid the broader reopening of the economy. The unemployment rate fell from 5.9% in June to 5.4% in July.

While this certainly gives investors and the market confidence in the continued progress of the US recovery, the result is not so strong as to raise fears that the economy is overheating and is therefore unlikely to push the Fed to move any faster in taking away the punch bowl. In other words, a perfect temperature and just what the stock market bulls ordered.

This upcoming week sees a bunch more earnings reports (including EBay, DoorDash, Wendys, AirBnb and perhaps most interestingly, Disney) as well as the release of official data providing new insights into the housing market, consumer sentiment and the big one on Wednesday; inflation.

Earlier in the week, Richard Clarida, vice chairman of the Federal Reserve, basically said that it is not going to stop pouring $120 billion a month into financial markets via bond purchases until both of its two principal objectives have been reached; 1) lowering unemployment to the 3–4% range, and 2) getting inflation back to at least close to 2%. Neither of these objectives look imminently achievable, so the financial open fire hydrant will likely remain gushing money for a while yet - to the delight of many market participants.

The benchmark 10-year Treasury interest rate stabilized a bit after falling below 1.20% for a while. Yes, that’s the same 10-year Treasury interest rate that this very report, as recently as April, described as spooking tech stocks when it spiked above 1.70%.

The “perfect” jobs report came at the back end of what had already been a pretty decent week for the market. Data released earlier had shown U.S. manufacturing continuing to look solid in July and the closely-watched Purchasing Managers Index was pretty inspiring as well. The $1 trillion infrastructure spending bill kept on trundling through the legislature. Best of all, corporate earnings continued to prove largely astounding, wrecking analyst estimates all over the place.

Conventional investor wisdom is that widespread lockdowns in the US don’t look likely to return (as articulated last week by Fauci), even if indoor masking does make a comeback in many states as a result of the now-ubiquitous Delta variant.

The main subject of last week’s report, China’s apparently self-inflicted stock market crash, continues to draw investor attention, with Chinese state media last week putting the video gaming sector firmly in its sights, describing online gaming as “spiritual opium” and “electronic drugs” and calling for more restrictions on the industry. A fearful market is wondering, who’s next in the line of fire?

Under the hood in the US markets, some very small green shoots of damage reconstruction are now beginning to appear. For the first time in weeks, buying power outpaced selling pressure (see below) and the small cap recovery went into its second consecutive week, which is good news for overall stock participation and market breadth which needs to be maintained at a high level for stock prices to persist in a meaningfully upward direction.

It should be noted, however, that all this modestly good news is taking place in a very low-volume summer trading environment (trading volumes on the New York Stock Exchange have been contracting for the last five weeks now) and broad-based, solid evidence of a sustained turnaround in demand for stocks still remains somewhat flimsy and given the magnitude of the internal erosion that has occurred since mid-March, stocks do still remain vulnerable to a decline. What we will need to see is an ongoing and largely continuous improvement in the predominance of demand over supply in the coming weeks in order to significantly reduce this vulnerability.


THE WEEK:

Relatively speaking .. 

- The S&P 500 again outperformed the tech-heavy NASDAQ-100

- US markets had a slightly better week than international developed markets while emerging markets continued to struggle (I’m looking at you, China!)

- Back-to-back solid recovery weeks for small cap stocks which finished again nicely ahead of mid caps and large caps

- Value stocks once again outperformed growth stocks

- The week’s best performing US sector: Financials

- The week’s worst performing US sector: Consumer Staples

Technical corner 
.. 

- The proprietary Lowry's measure for US Market Buying Power rose 2 points and that of US Market Selling Pressure fell 5 points

SPY, the S&P 500 ETF, is still comfortably above both its 50-day and 200-day moving averages. It ended the week at yet another new all-time high

QQQ, the NASDAQ-100 ETF, is still comfortably above both its 50-day and 200-day moving averages. It ended the week 0.44% below its all-time high set in July 2021 


ARTICLE OF THE WEEK:
Each week I'll link to an interesting article I have come across during the week.

A crypto theme this week. The future of crypto as a consequential asset class could well lie in the hands of one man


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