Despite closing slightly lower last week, the S&P 500 marked its 29th record high and the NASDAQ hit its 44th. The NASDAQ is within shouting distance of 1999 (61) in terms of number of record closing highs in a single year. Interest rates crept higher on the longer end despite dovish Fed takeaways. Oil moved sharply higher supported by a weaker dollar, tightening supply/demand metrics, and an OPEC narrative for higher oil prices – a welcomed development for Saudis as we draw closer to the Saudi Aramco IPO.

Weekly Anecdotes:

  • Last week was the peak of 2Q earnings announcements and the numbers are encouraging. The S&P 500 blended earnings growth thus far is 9.1% with energy (322%), IT (13%), and financials (11%) driving the positive results. A positive earnings guidance spread of 3.1% is the most encouraging pace thus far since Q1 2011.
  • The FOMC meeting produced no surprises and no changes. Highlights in the FOMC communique indicate Fed will start to unwind its balance sheet “relatively soon” – likely September. The overall dovish tone triggered further softness in the dollar.
  • Early in the week, both European and US stocks surged on an IMF and ECB narratives for more ECB stimulus and ECB flexibility on QE tapering. The market’s belief that central bank plans to tighten are a mirage seem more legit with each passing week. Futures markets are placing a 47% probability of Fed 25bps tightening in December.
  • Television News Archive compiles a 30-day rolling sum of hawkish monetary policy conversations across global business news networks. The most recent tally (17%) is the highest frequency since they began the data series in 2014.
  • Low volatility? Bespoke reported the VIX closed below 10 for 10 straight days through last week and 17 times this year. Remarkable note – since 1990, the VIX has only closed in the single digits 26 times, and nearly two-thirds of those were this year. The all-time closing low (9.31) from 1993 remains intact but it did post a record low intraday level of 8.8 last week.
  • The Conference Board’s gauge of consumer confidence rose to 121.1 in July from 117.3 last month – the second highest reading since 2000.
  • It was reported that North Korea will be able to launch a nuclear-capable intercontinental ballistic missile that may be able to reach the lower 48 as early as next year.
  • The Economist Intelligence Political Risk Score ranks Britain alongside Congo, Iraq, Cambodia, and El Salvador as one of the 10 highest political risk countries in the world given Brexit and the resulting uncertainty surrounding its implementation.

Economic Updates:

  • The U.S. BEA released initial 2Q GDP estimate of 2.6% and made routine July annual revisions to prior year figures. 2Q was largely in line with expectations and historical revisions to 2014 and 2015 were approximately 0.2% higher while 2016 was 0.1% lower (oil crash).
  • July’s Flash Eurozone Manufacturing PMIs disappointed on Monday, falling from June’s 57.4 to 56.8, a 3-month low. Flash Manufacturing PMI for the U.S. was more encouraging, rising from 52 to 53.2, a four-month high.
  • U.S. existing home sales fell 1.8% in June but year over year median prices rose 6.5% to $263,800, an all-time high. The U.S. housing market still looks like a source of strength in the economy.
  • The U.S. job market remained strong turning in the 125th consecutive week of less than 300k claims. Bespoke noted that you must go all the way back to 1968 to find a year where the current week of July had a lower jobless claim reading.
  • Thursday’s strong durable goods orders of 6.5% (only 3.9% expected) was not as encouraging as the headline suggests. Orders were inflated by a civilian aircraft order surge of 131%. Orders ex-transportation missed expectations.