Emotional Week Ahead?
Bitcoin to Rally...
KR Opinion
It's impossible to begin without reflecting on the significant events of this past weekend. On Saturday, July 13th, there was an assassination attempt on President Trump. He narrowly escaped with his life as the bullet grazed his ear, missing his head by mere fractions of an inch.
As an older individual, this incident evokes memories of the assassination of President Kennedy and other such events. What stands out to me is the potential psychological and emotional impact this incident may have, especially with the Republican National Convention (RNC) taking place this week.
I anticipate President Trump's upcoming speech will become one of the most watched events ever.
My contemplation centers around what this means for the markets. While unsure of a direct financial impact, the psychological element cannot be ignored. Many people in the United States are emotionally affected by this event, and I believe this emotional undercurrent will influence market behavior.
We see a moderate uptrend across most major indices as we analyze the overnight markets. Reflecting on last week, we observed a significant surge in the small-cap Russell stocks.
The magnitude of Saturday's event has potentially shifted market sentiment, prompting a more positive outlook on these stocks. Despite the ongoing challenges within the small-cap sector, market sentiment can drive stocks higher. I will provide a more detailed analysis of the Russell later in this newsletter.
From an economic standpoint, we expect a light schedule this week. The most notable releases are the housing starts numbers on Wednesday and the usual initial and continuing jobless claims, which, despite being closely watched, have not triggered significant market reactions recently. Expectations remain muted.
We also have the Industrial Production and Capacity Utilization reports coming out. While these reports are somewhat significant, they are not expected to be major market movers. All eyes will likely be on President Trump's Thursday night acceptance speech at the RNC. It will be interesting to observe any emotional reactions in the markets on Friday, as no significant economic numbers are expected to be released.
The emotional climate created by this weekend's events will undoubtedly influence the markets in ways that might be unpredictable. While the impact may be felt globally, it is particularly pronounced in the United States. This week promises to be intriguing for unforeseen reasons, as the markets closed last Friday.
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Looking Back on Last week
The stock market ultimately logged gains, but there wasn't much conviction in the first half of the week ahead of market-moving events. The June Consumer Price Index (CPI) and Producer Price Index (PPI) were released on Thursday and Friday.
Total CPI decreased by 0.1% month-over-month, slowing the year-over-year growth rate to 3.0% from 3.3% in May. Core CPI, which excludes food and energy, decelerated to 3.3% year-over-year from 3.4%.
Total PPI increased by 0.2%, compared to the expected 0.1% rise, while Core PPI increased by 0.4%, surpassing the expected 0.1% increase.
The CPI report overshadowed the PPI report and fueled optimism about the path of inflation and Federal Reserve policy. The Fed funds futures market is now pricing in a 94.4% probability of a rate cut at the September FOMC meeting, up from 77.7% one week ago.
Treasury yields sank in response to the data, supporting equities. The 10-year note yield fell eight basis points to 4.19%, and the 2-year note yield declined 14 basis points to 4.46%.
This week's calendar also featured the start of earnings season, with JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) reporting results ahead of Friday's open. Despite beating earnings estimates, their quarterly results garnered negative responses.
Fed Chair Powell's semiannual monetary policy testimony before the Senate Banking Committee and the House Financial Services Committee did not elicit a significant response from bond or equity markets. There were no surprises in his remarks, which included an acknowledgment that the "likely next direction" of policy will be a loosening, indicating a rate hike is unlikely.
This week, losses in the mega-cap space limited gains for the S&P 500 and Nasdaq Composite. The Vanguard Mega Cap Growth ETF (MGK) logged a 0.7% decline. Money was rotating away from mega-caps due to profit-taking activity and moving into market areas that have lagged this year.
The Russell 2000 jumped 6.0% this week, and the S&P Mid Cap 400 gained 4.3%. Meanwhile, the Invesco S&P 500 Equal Weight ETF (RSP) logged a 3.0% gain. The top-performing S&P 500 sectors included the rate-sensitive real estate (+4.4%) and utilities (+3.9%) sectors, along with the materials (+3.0%) and industrials (+2.4%) sectors.
KR Forecast noted that the stock market ultimately logged gains, but there wasn't a lot of conviction in the first half of the week ahead of market-moving events. The June Consumer Price Index (CPI) and Producer Price Index (PPI) were released on Thursday and Friday.
Total CPI decreased by 0.1% month-over-month, slowing the year-over-year growth rate to 3.0% from 3.3% in May. Core CPI, which excludes food and energy, decelerated to 3.3% year-over-year from 3.4%.
Total PPI increased by 0.2%, compared to the expected 0.1% rise, while Core PPI increased by 0.4%, surpassing the expected 0.1% increase.
The CPI report overshadowed the PPI report and fueled optimism about the path of inflation and Federal Reserve policy. The Fed funds futures market is now pricing in a 94.4% probability of a rate cut at the September FOMC meeting, up from 77.7% one week ago.
Treasury yields sank in response to the data, supporting equities. The 10-year note yield fell eight basis points to 4.19%, and the 2-year note yield declined 14 basis points to 4.46%.
This week's calendar also featured the start of earnings season, with JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) reporting results ahead of Friday's open. Despite beating earnings estimates, their quarterly results garnered negative responses.
Fed Chair Powell's semiannual monetary policy testimony before the Senate Banking Committee and the House Financial Services Committee did not elicit a significant response from bond or equity markets. There were no surprises in his remarks, which included an acknowledgment that the "likely next direction" of policy will be a loosening, indicating a rate hike is unlikely.
This week, losses in the mega-cap space limited gains for the S&P 500 and Nasdaq Composite. The Vanguard Mega Cap Growth ETF (MGK) logged a 0.7% decline. Money was rotating away from mega-caps due to profit-taking activity and moving into market areas that have lagged so far this year.
The Russell 2000 jumped 6.0% this week, and the S&P Mid Cap 400 gained 4.3%. Meanwhile, the Invesco S&P 500 Equal Weight ETF (RSP) logged a 3.0% gain. The top-performing S&P 500 sectors included the rate-sensitive real estate (+4.4%) and utilities (+3.9%) sectors, along with the materials (+3.0%) and industrials (+2.4%) sectors.
Nasdaq Composite: +22.6% YTD
S&P 500: +17.7% YTD
S&P Midcap 400: +8.6% YTD
Dow Jones Industrial Average: +6.1% YTD
Russell 2000: +6.0% YTD
Economic Releases for the Week of July 15
July 15
08:30 ET: NY Fed Empire State Manufacturing
For: July | Trading Impact: Low | KR Forecast: -10.0 | KR Cons: -6.0 | Prior: -6.0
July 16
08:30 ET: Retail Sales
For: June | Trading Impact: High | KR Forecast: -0.3% | KR Cons: -0.1% | Prior: 0.1%
08:30 ET: Retail Sales ex-auto
For: June | Trading Impact: High | KR Forecast: 0.0% | KR Cons: 0.2% | Prior: -0.1%
08:30 ET: Import Prices
For: June | Trading Impact: Low | KR Forecast: NA | KR Cons: NA | Prior: -0.4%
08:30 ET: Import Prices ex-oil
For: June | Trading Impact: Low | KR Forecast: NA | KR Cons: NA | Prior: -0.3%
08:30 ET: Export Prices
For: June | Trading Impact: Low | KR Forecast: NA | KR Cons: NA | Prior: -0.6%
08:30 ET: Export Prices ex-ag.
For: June | Trading Impact: Low | KR Forecast: NA | KR Cons: NA | Prior: -0.8%
10:00 ET: Business Inventories
For: May | Trading Impact: Low | KR Forecast: 0.4% | KR Cons: 0.3% | Prior: 0.3%
10:00 ET: NAHB Housing Market Index
For: July | Trading Impact: Low | KR Forecast: 44 | KR Cons: 44 | Prior: 43
July 17
07:00 ET: MBA Mortgage Applications Index
For: 07/13 | Trading Impact: Low | KR Forecast: NA | KR Cons: NA | Prior: -0.2%
08:30 ET: Housing Starts
For: June | Trading Impact: High | KR Forecast: 1330K | KR Cons: 1310K | Prior: 1277K
08:30 ET: Building Permits
For: June | Trading Impact: High | KR Forecast: 1400K | KR Cons: 1391K | Prior: 1386K
09:15 ET: Industrial Production
For: June | Trading Impact: Medium | KR Forecast: 0.2% | KR Cons: 0.3% | Prior: 0.9%
09:15 ET: Capacity Utilization
For: June | Trading Impact: Medium | KR Forecast: 78.5% | KR Cons: 78.6% | Prior: 78.7
10:30 ET: EIA Crude Oil Inventories
For: 07/13 | Trading Impact: High | KR Forecast: NA | KR Cons: NA | Prior: -3.44M
July 18
08:30 ET: Initial Claims
For: 07/13 | Trading Impact: High | KR Forecast: 218K | KR Cons: 225K | Prior: 222K
08:30 ET: Continuing Claims
For: 07/06 | Trading Impact: High | KR Forecast: NA | KR Cons: NA | Prior: 1852K
08:30 ET: Philadelphia Fed Index
For: July | Trading Impact: Low | KR Forecast: 0.7 | KR Cons: 2.9 | Prior: 1.
10:00 ET: Leading Indicators
For: June | Trading Impact: Low | KR Forecast: -0.3% | KR Cons: -0.3% | Prior: -0.5%
10:30 ET: EIA Natural Gas Inventories
For: 07/13 | Trading Impact: Low | KR Forecast: NA | KR Cons: NA | Prior: +65 bcf
16:00 ET: Net Long-Term TIC Flows
For: May | Trading Impact: Low | KR Forecast: NA | KR Cons: NA | Prior: $123.1B
WaveTech Database
As expected, the intermediate database detected a positive rotation with 1,329 new entries and 102 exits. Consequently, the bullish percentage rose from 61% to 65.27%. We observed a similar explosion in the short-term database, which now stands at 70.06% bullish.
This increase included 749 new entries and 59 exits, marking a robust trend period. Mid-cap and small-cap stocks make up about 35% of the new entries and are driving this positive rotation.
Furthermore, we have witnessed a significant rotation in various sectors. Basic materials, conglomerates, technology, transportation, and utilities sector have all returned positively, issuing buy signals. Currently, nine out of twelve sectors are bullish.
I'll provide a more detailed analysis shortly, but some challenges are ahead regarding further rotation into small-cap stocks. More on this later. However, the forward-looking element of the database remains optimistic, suggesting that this positive trend could continue into late August and September, potentially extending even further.
This aligns with my discussions throughout the year. Each time, we might enter a slight negative rotation in the intermediate database, which tracks primary trends, but we experience a positive rotation instead. Therefore, the outlook continues to be reasonably positive as we move forward.
S&P 500 Futures
