Market at a Glance

Market at a Glance - 8/30/2016

By: Christopher Mistal

August 30, 2016

Psychological: Troubling. According to the most recent Investor’s Intelligence Advisor Sentiment survey bullish sentiment is still frothy. Bullish advisors stood at 56.7%, Bearish advisors were at 20.2%, while correction advisors are at 23.1%. The spread between bulls and bears remained at its highest level since early 2015 when the market last stalled. Although bullish sentiment is elevated, if does not mean a meaningful correction or pullback is imminent. Sentiment can remain highly bullish for extended periods of time especially if the market remains resilient.

Fundamental: Mixed. Second quarter earnings for S&P 500 companies were down 1.8% year-over-year, but better than the expected decline. Excluding energy the results would have been positive. New home sales surged in July, but existing home sales fell in July for the first time since February. July payroll gains were a whopping 255k and the unemployment rate held at 4.9%. Consumer speeding also rose for the fourth straight month in July. U.S. Q2 GDP was revised down to 1.1%. It seems for every positive there is an offsetting negative that is keeping overall progress in check. Fewer negatives are needed in order for the fundamental landscape to improve.

Technical: Range bound. DJIA, S&P 500 and NASDAQ all broke out to new all-time highs, Russell 2000 has not. Since the breakout momentum has waned and the major indices have slipped into a narrow trading range. DJIA, S&P 500 and NASDAQ have been essentially moving sideways for at least a month. Russell 2000 has climbed modestly higher. Stochastic, relative strength and MACD indicators all confirm the loss of momentum.

Monetary: 0.25-0.50%. The next Fed announcement is currently scheduled for September 21 and it will be accompanied by a Summary of Economic Projections and a press conference. Past projections have proven overly optimistic and this time will likely be no different. The Fed has repeatedly stated its data dependent nature and inflation is not where they want it. The multi-year trend is still lower, not higher even though there has been a modest pickup in CPI and PPI this year.

Seasonal: Bearish. Since 1950, September is the worst performing month of the year for DJIA, S&P 500, NASDAQ (since 1971), Russell 1000, and Russell 2000 (since 1979). September’s performance does improve slightly in election years, but it is still negative nearly across the board. Only the Russell 1000 and Russell 2000 have been able to escape negative territory and post modest 0.2% and 0.7% average gains.