U.S. equities finished mixed on Monday amid quiet, late-summer trading.
In the end, the Dow Jones Industrial Average lost 0.1%, the S&P 500 Index lost 0.1%, the Nasdaq Composite gained 0.1% and the Russell 2000 gained 0.2%.
Treasury bonds strengthened, the dollar was little changed, gold lost 0.3% and crude oil fell 3%. Crude prices were hit by reports that hedge funds have cut their short position in oil — diminishing some of the short-squeeze potential driven by rumors and reports of a possible OPEC-Russia supply freeze deal.
Other news weighing on energy included word of a conditional ceasefire by Nigerian oil rebels and reports Iraq would boost exports by 5% out of oil fields in Kirkuk.
Utility stocks led the way with a 0.3% gain, while energy issues were the laggards, down 0.9%. Pfizer Inc. (NYSE:PFE) lost 0.4% after agreeing to buy Medivation Inc (NASDAQ:MDVN) in a $14 billion deal that adds the company’s portfolio of late-stage oncology products to PFE’s existing portfolio.
Overall, stock prices remain in stasis as investors await Federal Reserve Board Chair Janet Yellen’s speech in Jackson Hole on Friday.
In the wake of Wednesday’s release of rather dovish meeting minutes from July, the futures market pushed out better-than-expected odds of a rate hike to next March.
Until inflation becomes a problem and wages are growing at a 3%-plus clip, it’s clear that any hawkish bluster we hear between now and the Fed’s September policy meeting is just trying to keep the market honest. Everyone knows a hike before the election just isn’t going to happen. And a December hike is merely a remote possibility with inflation and GDP growth tepid.
Yellen learned early on, after a press conference bumble about what she thought “considerable period” meant in the context of the timing of rate liftoff, that being as non-specific as possible is the best strategy. Unlike Alan Greenspan’s syntax destruction and Ben Bernanke’s sleepy delivery, Yellen has mastered the art of uttering many words of very little substance.
Once September rolls around, however, things are going to get exciting.
The Fed’s September policy meeting will be closely watched for clues as to whether a December hike could happen. The first presidential debate will further focus attention on an electoral outcome that will have huge policy ramifications for the economy and financial markets. We will have confirmation on whether the second-half earnings and economic growth bounce back investors have penciled in is happening or not. And folks will start looking ahead to fresh elections in Europe heading into 2017.
But that doesn’t mean there won’t be action in the meantime. Last week, there was exciting new moves in areas of the market that have lagged the post-Brexit surge out of the June low. Retail stocks are on the move. Transports are perking up. Financials are showing signs of preparing for an upside breakout out of multi-month consolidation ranges. And even forlorn new-tech darlings like Twitter Inc (NYSE:TWTR) and GoPro Inc (NASDAQ:GPRO) are showing signs of reanimation.
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Sentiment remains tepid and investor outflows have been aggressive in recent months. That’s raw fuel that could sustain an end-of-year meltup that surprises the skeptics.
Already, the S&P 500 is up nearly 6.9% for the year-to-date. Since 1928, when stocks have been up year-to-date at this point, according to Bespoke Investment Group, they have gained an average of 4.1% for the rest of the year. Another interesting stat: There have been 44 years since 1928 that stocks have been up 5% or more at this point. In only one case out of those 44 did stocks finish down on the year. And it was in 1928.