U.S. equities finished little changed last Friday as the acquisition of Whole Foods Market, Inc. (NASDAQ:WFM) by Amazon.com, Inc. (NASDAQ:AMZN) for $13.7 billion attracted all the attention. Volatility was light as June options expired. But watch for a return of heavier action early next week as headwinds from Trump-Russia political risk to the Federal Reserve’s ongoing policy tightening campaign weigh on sentiment.
In the end, the Dow Jones Industrial Average gained 0.1%, the S&P 500 gained a fraction, the Nasdaq Composite fell 0.2%, and the Russell 2000 fell 0.2%. Treasury bonds were mostly stronger, the dollar was weaker, gold gained 0.2%, and oil gained 0.6%. The rise in T-bonds boosted the ProShares Ultra Treasury Bond (NYSEARCA:UBT) recommended to Edge subscribers to an 8.5% gain since added in January.
For the week, the Dow Jones Industrial Average finished with a 0.52% gain while the S&P 500 managed to slink away with a 0.05% improvement, but the Nasdaq and Russell 2000 were both down around 1% for the five-day period.
Friday’s breadth was positive, with 1.4 advancers for every decliner on the New York Stock Exchange. But volume was extremely heavy, at more than twice the 30-day average. Energy stocks led the way with a 1.7% gain while consumer staples were the laggards, down 1%, as retailers and grocers (many down 10%) came under pressure from the AMZN deal.
Nike Inc (NYSE:NKE) was worth mention too, though. The athletic apparel maker fell 3.4% on a downgrade from JPMorgan, citing wholesale channel activity, and the company also recently announced that it will be reducing headcount by 2%. That sent NKE shares down to roughly breakeven for the year — not the rebound many hoped for after its nearly 20% down year in 2016.
On the economic front, there was more bad news. May housing starts fell 5.5% month-over-month and 2.4% on an annual basis. The Michigan consumer sentiment index fell to its lowest level since the election.
That leads us to the thing every investor should be watching like a hawk.
Conclusion
The chart above is the single most important dynamic in play right now.
U.S. economic data is disappointing on a scale not seen since 2011. Retail sales are falling, and several analysts have reduced GDP growth estimates of late. A few weeks ago, the durable goods orders report for April showed the first decline in five months.
And yet, the bulls steadfastly refuse to acknowledge or react to the combination of developing economic weakness with an extremely hawkish Federal Reserve.
We’ll hear much more from the Fed this week, with a number of policymakers on the speaking schedule. Both New York Fed President Bill Dudley and Chicago Fed President Charles Evans will speak on Monday. Vice-chairman Stanley Fischer will speak on Tuesday.
While the daily hum of economic reports may invoke yawns, they’re increasingly important to watch, as they can either give credence to or discredit the advancing market.
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.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Two- and four-week free trial offers have been extended to Investorplace readers.
