The dog days of summer…In what was the lightest volume week of the year, the S&P 500 closed at a record high and registered a fourth straight weekly gain. Four weeks ago, markets were, for a short time, more chaotic than perhaps any time since 2008 as the S&P 500 went from 1.6 standard deviations over its 50 day moving average to 3.2 standard deviations below, the largest decline ever in such a short period. Over the following ten trading days, the market jumped from 3.2 below to 2.5 above on the same metric, the largest such 10 day improvement since a brief but very pointed rally in August 1982. Some high profile M&A deals and generally encouraging earnings and economic results last week served to bolster confidence in financial markets.
The economic calendar was fairly light and skewed toward housing figures. Housing starts beat expectations while June’s existing home sales rose 3%, which is the highest rate since February 2007. Last week’s jobless claims came in lower than expected at 253,000 - the second lowest weekly number of the current cycle and the 72nd consecutive week with less than 300,000 jobless claims - the longest streak since 1973. Next week has much more in store with the first release of Q2 GDP, an FOMC meeting, and the peak of Q2 earnings season.
Earnings season is well underway and early indications are relatively encouraging. Earnings and revenue figures are beating expectations at a 68% and 57% clip, respectively, but overall earnings are still projected to contract by 4.4% from last year at this time. The commodity complex was off slightly last week with oil, grains, and metals losing ground in the face of a strengthening U.S. dollar. U.S. rates moved sideways given the light economic calendar and anticipation of this week’s FOMC meeting where the Fed is largely expected to stay the course. The quandary of why stocks are trading at record highs while bond yields hover around record lows begs the question of which of these asset classes are wrong - or are central banks distorting natural market forces.