EDITOR’S NOTE: Sam Collins is out today. James Brumley is providing the Daily Market Outlook.
Thursday’s trading was once again trapped between a rock and a hard place. August’s ISM Index, which measures industrial activity, slipped back into sub-50 territory, suggesting economic contraction.
Yet, employers are planning 22% fewer layoffs than they were planning just a month ago, pointing to a strengthening labor market that tends to coincide with a growing economy. By the time the closing bell rang, the S&P 500 Index was back to breakeven levels for the day, reclaiming its intraday loss that at one time exceeded 0.6%.
The basic materials sector led the bullish charge with a 0.82% gain, while utility stocks were bottom-draggers with their 0.25% loss. Crude oil price were off 2.6% to $43.52 per barrel, while spot gold was up 0.46% to $1317.40 per ounce.
As was noted, the S&P 500 effectively broke even, ending the session at 2170.86. The other key indices fared better though. The Nasdaq Composite’s close of 5227.21 was 0.27% better than Wednesday’s last trade, while the Dow Jones Industrial Average advanced 0.1% to close at 18,419.3.
The breadth and depth picture was similarly mixed. For the New York Stock Exchange, decliners outpaced advancers by a ratio of 1.1 to 1.0, and the NYSE’s bearish volume was greater than its buying volume by 1.21 to 1. For the Nasdaq, however, bullish volume was better than bearish volume by a ratio of 1.4 to 1, while there was 1.14 advancers for every one decliner. Overall volume wasn’t quite as strong as Wednesday’s trade.
It’s more than safe to assume this stagnation is the result of traders’ willingness to hold off until Friday morning’s jobs report for last month, especially considering those same traders have gotten very little clarity regarding the economic landscape over the course of the past few days. Broadly speaking, the recent employment reports — and not just the Department of Labor’s monthly wrap-ups — have shown strength.
If the market is hoping for a reason the Federal Reserve will once again kick the rate hike can down the road, they’re not likely to get it. Whether or not those investors choose to see the glass as half full rather than half empty remains to be seen, but the intraday pullback seen in each of the past two trading sessions points to a wave of potential profit-taking. The market just needs the right nudge.
It’s certainly the right time of year for such a nudge. September is the only month of the year that is, on average, a decided loser. The S&P 500’s average return for September is a loss of 0.68%, and it loses ground more often than not.
To say the market is on the fence here isn’t a cop out — it really could go either way from here, as early as tomorrow. Nowhere is this more evident than with the Dow Jones Industrial chart. It’s been drifting lower since mid-August, but the bulls have made something of a stand for the past two trading days at the 50-day moving average line. The 50-day line isn’t always a battleground, but it is often enough to respect that role now.
The S&P 500 (and the Nasdaq, for that matter) looks about the same shape-wise, although it isn’t testing any key moving averages yet. But from this distant perspective, one can clearly see how far removed from the mean, or average, the recent rally has carried the index.
In a normal environment the overbought condition of stocks would almost certainly setup some sort of corrective move. We’re not in a normal environment though. We’re in an environment where traders are looking for any reason to be bullish and tack on even more gains … adding to already frothy valuations. They’re coming empty in the hunt for those reasons, however.
Friday’s jobs report could become such a catalyst, but even if the knee-jerk response is bullish, it’s apt to be short-lived. There’s just not much room for more upside, particularly in August.
If instead the initial response to the August jobs report is bearish, that’s apt to kick start the pullback that’s been trying to get going for a couple of days now. The bears just need to land that one decisive blow. That stumble could send the S&P 500 back to the 2110 area, for starters.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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.
