After getting rattled Tuesday with a sharper drop following three or so weeks of lateral moves for NYSE indices and rallies by NASDAQ and SOX, stocks put in an upside session. No barnburner, no clear renewal of buying as the gains were modest -- compared to Tuesday's weakness -- thus far just a rebound from the Tuesday sharper selling. Not wholly convincing, basically bouncing where it needed in order to try and keep the last rally intact and to try and build on it.
SP500 6.76, 0.31%
NASDAQ 22.01, 0.43%
DJ30 41.23, 0.23%
SP400 0.61%
RUTX 0.86%
SOX 0.11%
VOLUME: NYSE flat; NASDAQ -11%. Upside and yet lower volume. As noted, no clear return of buying.
A/D: NYSE 2:1, NASDAQ 1.9:1
Good to see the recovery ahead of the Friday jobs report as it keeps the indices in the game for a move higher if so inclined after that report. After, that is, another potential catalyst. The market has passed up a lot of upside catalysts in the past three weeks after that last move higher following the June report. Just waiting for jobs? Could be, but about all you can say about the Wednesday move was it kept the indices in the hunt for a new move higher after we wait out yet another 'most important' jobs report. Why is this one getting that billing as it did the time before (and before that?)? Because May was horrid, June was a snapback that was 'great,' 'surging,' etc. That makes July the rubber match. It also likely makes July quite boring because nothing really has changed.
ADP released its July employment survey and it beat:
179K versus 165K expected versus 176K June (from 172K).
The report was disappointing, however, because the bulk of the jobs were in services (+185K) contrasted with weakness in small business hiring that saw construction jobs fall. Again, that is really no surprise because the makeup of the jobs report, month after month after year after year is dominated by the hourly, lower wage service sector jobs. Truly no change, and again, there will be no change until policies change and once again make it worth companies making capital investments in their businesses and create better jobs. This versus taking virtually free money and 'investing' in stock buybacks.
Of course, that only applies to the large corporations that can take advantage of that free money. The smaller businesses cannot. Adding injury to insult, they are disproportionately impacted by all of the regulations and new taxes the ACA, EPA, FDA, ATF, etc. are piling on. They cannot invest because they are simply trying to survive until the policies are changed. The way things look right now, however, it would appear there will be at least 4 more years of the same, i.e. more taxes and more regulations with no repeal or rollback of any of the hundreds of thousands of new regulations and taxes implemented the past 10 or more years.
Wow, that sounds downright depressing. Didn't mean it to be, but when you think about it, it should be.
Perhaps stock investors and traders saw this weakness as a reason to hope for more Fed and central bank involvement. Maybe, but the real story is of course Friday when the BLS numbers are fabrica -- I mean -- released. Another weak, May-like number and the Fed is locked in to no hikes until after the election.
A stronger, June-esque number and the Fed is in play for September. Whether the market sees either one as a positive depends upon the economic data and if it can support a market move higher based upon the economics and not the Fed.
With S&P earnings projected at -2.6% year/year this quarter, perhaps the economic juice is just not there. After that string of upside surprises in economic data raised hopes that the pattern of a springtime recovery but a late summer to year end fade was ending, the data has quickly tailed off once more, including Wednesday's July ISM Services Index:
55.5 versus 55.8 expected versus 56.5 June
Yet another expectations miss and more slowing in the data. Nothing horribly negative, nothing suggesting a recession (other than data that in many cases matches what prior recessions have shown), but definitely enough to show things are not just surging upside. Indeed, sadly, the data once again suggests any hope of a Q3 takeoff are, again, likely to be dashed. That does indeed make the Friday jobs report important, but I wouldn't say it was the most important.
Yes Wednesday was a bounce session, but a bounce that didn't change the technical picture. Thus we were not buying this move though we do see some pretty good setups shaping up that could give us some nice entries. We mostly managed positions around earnings, again taking some off the table ahead of results, taking some gain on nice moves ahead of earnings by BLUE (once again), and letting others work post earnings, e.g. CWEI as it moved nicely higher.
We do see some good setups and there are some nice moves afterhours on earnings, e.g. JACK as it goes pop on its results. TSLA is just idling. As has been the case, stock specific news helps specific stocks, many others appear to be biding time right now ahead of yet another potential catalyst.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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