Summer Doldrums Can’t Keep the Market Down Forever

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On Monday, a 1.2% drop in energy stocks dragged the Dow Jones Industrial Average and S&P 500 lower, each closing off 0.1%. The tech-heavy Nasdaq rose 0.1%.

According to The Wall Street Journal, this marks the longest period in two years (31 consecutive sessions) that the S&P 500 has moved less than 1% in either direction. In other words, this is the epitome of the summer doldrums.

Oil plunged 3% Monday to $47.05 a barrel on concerns about increased crude exports from China and Iraq, as well as an increase in U.S. rig count. Notable decliners included Marathon Oil Corporation (NYSE:MRO), down 5.9%, Halliburton Company (NYSE:HAL), off 3.8%, and Transocean LTD (NYSE:RIG), down 3.7%.

The biotech sector outperformed with iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) up 2%. Technology was also strong, as chipmaker Intersil Corp (NASDAQ:ISIL) soared almost 20% as a result of a proposed offer to buy Japanese manufacturer Renesas Electronics (see the Aug. 5 Trade of the Day).

Over the weekend, Federal Reserve Vice Chairman Stanley Fischer said inflation is close to meeting the central bank’s 2% target and economic growth is expected to increase. His comments raised expectations of an interest rate increase, with the chances of a December rate hike jumping from 39.1% on Friday to 40.6% on Monday, according to fed funds futures. Fed Chair Janet Yellen is scheduled to speak Friday at the Fed’s annual meeting in Jackson Hole, Wyoming.

The U.S. dollar rose 0.1% against a basket of 16 other currencies as the chances of a rate hike increased. In turn, dollar-denominated commodities like oil and gold fell.

At Monday’s close, the Dow Jones Industrial Average fell 23 points to 18,529, the S&P 500 lost a point at 2,183, the Nasdaq gained 6 points at 5,245, and the Russell 2000 was up 3 points at 1,240.

The NYSE Composite’s primary exchange traded 703 million shares with total volume of 2.8 billion. The Nasdaq crossed 1.5 billion shares. On the Big Board, advancers slightly exceeded decliners, and on the Nasdaq, advancers led by 1.2-to-1.

S&P 500 Chart
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Although the S&P 500 has regularly achieved new highs, it is moving ahead at a snail’s pace. Selling pressure is almost absent, so it is likely that the uptrend will continue.

Note that even though the index closed 1.23 points lower on Monday, the intraday high and low were both higher than on Friday. Momentum is still with the bulls. MACD is indicating that the narrow channel has resulted in a slightly oversold condition.

Conclusion

Barring an event beyond our ability to foresee, stocks should eventually overcome the narrow bull channel and move higher. The concept of “risk on” is supported by strength in the technology and biotech sectors.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2016/08/daily-market-outlook-summer-doldrums-cant-keep-market-forever/.

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