Market at a Glance

Market at a Glance - 7/28/2016

By: Christopher Mistal

July 28, 2016

Psychological: Troubling. According to the most recent Investor’s Intelligence Advisor Sentiment survey bullish sentiment is frothy. Bullish advisors stood at 53.9%, Bearish advisors were at 21.6%, while correction advisors are at 24.5%. The spread between bulls and bears is now at its highest level since early 2015 when the market last stalled. There may still be some cash on the sidelines, but the amount is much less than it was just four weeks ago.

Fundamental: Mixed. Brexit will create uncertainty across Europe, potentially for years. Corporate profits are on track for their fifth straight quarterly decline and U.S. GDP seems to be in a rut that is no better than around 2%. Latest Q2 GDP estimates are now around 1.8%. The U.S. labor market has proven resilient though with solid June gains following May’s disappointing report.

Technical: Break out? DJIA and S&P 500 have broken out to new all-time highs; NASDAQ and Russell 2000 have not. For this rally to continue, NASDAQ and Russell 2000 need to catch up and join the new high party. Without broad support the major indices are increasingly likely to slip back into a trading range.

Monetary: 0.25-0.50%. Another meeting and no change was made to the federal funds rate. The board did acknowledge recent improvements in data, particularly the labor market, but inflation is still below 2%. At one point it may have seemed like rates were headed higher sooner rather than later, this is no longer the situation.

Seasonal: Bearish. August is the worst DJIA and S&P 500 month from 1988-2015 with average declines of 1.3% and 1.0% respectively. It is also the worst month for NASDAQ (–0.4%) and second worst for Russell 2000 (–0.7%) over the same time period. However, in election years since 1952, Augusts’ rankings improve: #5 DJIA, #4 S&P 500, #1 NASDAQ (since 1971), #1 Russell 1000 and #1 Russell 2000 (since 1979).