U.S. markets were slightly weak following Friday’s open after China announced a fresh round of $60 billion in new tariff counter-measures and a lackluster U.S. jobs number.
The import taxes would range in rates from 5% to 25% with many of the goods are agricultural-related, with others on metals and chemicals.
The broader market showed more strength from the start with Tech and the small-caps remaining in a downtrend throughout much of the session.
The mixed close was offset by the continued drop in volatility which is approaching the early May flash-crash low north of 10.
The Dow advanced 0.5% after making a steady run to 25,467 ahead of the closing bell.
The move back above 25,400 was a bullish signal with July resistance at 24,600 being a more crucial level in holding.
The S&P 500 also added 0.5% after holding positive territory throughout Friday while going out at its high of 2,840. Late July resistance at 2,850 is back in play with a move above this level signaling continued momentum.
Both the S&P 500 and Dow were up for the 5th-straight week after rising 0.8% and 10 points, or 0.04%, respectively.
The Nasdaq rose 0.1% to extend its winning streak to 4-straight sessions with the high tapping 7,824.
Fresh resistance is at 7,850-7,900 with a move above the latter getting fresh all-time highs in play with a possible chance at 8,000 triggering.
The Russell 2000 failed resistance at 1,690 on the opening pop to 1,687 before declining 0.5%.
Lower support at 1,675-1,670 and the 50-day moving average held with the index showing higher highs and higher lows to end the week despite the pullback.
The Russell 2000 soared 1.3% for the week and the Nasdaq rose 1% to snap a 2-week losing streak.
Real Estate was the strongest sector after rallying 1.1% followed by Consumer Staples and Utilities with gains of 1.2% and 1.1%, respectively.
Energy was the only sector laggard after falling 0.5%.
Real Estate surged 3.4% for the week while Health Care jumped 2.1% and Consumer Staples advanced 1.7% to round out sector winners.
Communications Services sank 2.6% to pace sector weakness with Energy off 1.7% and Technology down 0.9%.
Second-quarter earnings from 76% of the S&P 500 have been reported thus far.
Looking at Q2 as a whole, combining the actual results from the 381 index members with estimates from the still-to-come 119 companies, total earnings are expected to be up 23.9% from the same period last year on 9.3% higher revenues.
This would follow 24.6% earnings growth from Q1 2018 on 8.6% higher revenues, and the best growth in nearly 7 years.
Global Economy – European markets were up on Friday to snap a 2-session losing streak but finished the week with declines.
UK’s FTSE 100 jumped 1.1% while the Stoxx 600 Europe and Germany’s DAX 30 gained 0.7% and 0.6%, respectively.
The Belgium20 and France’s CAC 40 rose 0.3%.
For the week, Germany’s DAX 30 tanked 1.9%. The Stoxx 600 Europe gave back 0.7% while UK’s FTSE 100 and France’s CAC 40 were down 0.6%
Eurozone June retail sales gained 0.3% month-over-month and 1.2% year-over-year, weaker than forecasts of 0.4% and 1.4%, respectively.
The UK July Markit/CIPS services PMI fell 1.6 to 53.5, missing estimates of 54.7.
Asian markets were mixed following weaker-than-expected economic news and ongoing tariff rhetoric.
China’s Shanghai gave back 1% while Hong Kong’s Hang Seng and Australia’s S&P/ASX 200 slipped 0.1%.
South Korea’s Kospi advanced 0.8% and Japan’s Nikkei climbed 0.1%.
The China July Caixin services PMI dropped 1.1 to 52.8, below expectations for a dip of 0.4 to 53.5.
The Chinese government stated that the implementation date of the taxation measures will be subject to the actions of the U.S., and China reserves the right to continue to introduce other countermeasures.
Non-farm payrolls increased 157,000 in July, missing forecasts of 188,000. Although a little disappointing, the unemployment rate ticked down to 3.9% from 4%.
Earnings were up 0.3% after June’s 0.1% gain, and at a 2.7% year-over-year pace versus 2.74%. The labor force edged up 105,000 following June’s 601,000 surge, with household employment up 389,00p versus 102,000.
Private payrolls increased 170,000, with goods producing jobs up 52,000, and construction up 19,00p. Manufacturing jobs rose 37,000, while services increased 118,000. The government shed 13,000 workers.
The labor force participation rate was steady at 62.9%. Overall, it was another very healthy job report.
The International Trade in Goods trade deficit widened 7.3% to -$46.3 billion in June after May’s 6.3% narrowing to -$43.2 billion. Expectations were for a deficit of $45.6 billion.
Exports declined 0.7% to $213.8 billion versus the prior 1.9% rise to $215.3 billion, while imports were up 0.6% to $260.2 billion following May’s 0.5% gain to $258.5 billion.
The real goods deficit widened to -$79.3 billion versus -$75.5 billion, with imports 0.8% higher and exports down 1.4%. The deficit with China was -$33.5 billion from -$33.2 billion, while Canada’s was at -$2.04 billion from -$1.46 billion.
Baker Hughes reported the U.S. rig count was down 4 rigs from the prior week to 1,044, with oil rigs down 2 to 859, gas rigs down 3 to 183, and miscellaneous rigs up 1 to 2.
The U.S. Rig Count is up 90 rigs from last year’s count of 954, with oil rigs up 94, gas rigs down 6, and miscellaneous rigs up 2. The U.S. Offshore Rig Count is up 1 rig to 17 and unchanged at 17 rigs year-over-year.
July PMI Services Index checked in at 56, just below forecasts of 56.3. Prices charged rose 1 to 55.6, and is the highest since September 2014.
The composite index slid 0.5 to 55.7 from June’s 56.2. It was at 54.6 last July. The employment component dipped to the lowest reading since February, while output prices rose to the highest level on record amid strong demand conditions.
July ISM Non-Manufacturing Index was at a 55.7 print, missing expectations of 58.8. This represented the slowest rate of expansion since the 55.2 print last August.
The employment component improved to 56.1 from 53.6, while new orders fell to 57 from 63.2. New export orders declined to 58 from 60.5.
Imports rose to 52.5 from 51.5. Prices paid increased to 63.4 from 60.7.
Market Sentiment – The New York Fed’s Nowcast cut its Q3 GDP estimate to 2.58% from 2.83%.
The Atlanta Fed’s Q3 GDPNow estimate was cut to 4.4% from 5% previously.
The nowcasts of third-quarter real consumer spending growth and third-quarter real private fixed investment growth declined from 3.4% and 5.9%, respectively, to 2.9% and 4.2%.
The iShares 20+ Year Treasury Bond ETF (TLT) closed in positive territory for a 2nd-straight session with Friday’s high touching $119.29.
We mentioned a close above upper resistance at $119.25-$119.50 could signal a near-term bottom.
The 50-day moving average remains in an uptrend and on track to clear a descending 200-day moving average.
This would form a golden cross and is typically a bullish signal for higher highs.
A more bullish development would be on continued closes above these levels, or $125.25-$125.50.
Shaky support is at $118.75-$118.25. A close below $118 would be a bearish signal.
RSI is pushing near-term resistance at 45-50 with a move above the latter signaling additional strength. Support is at 40-35.
Market Analysis – The Spider Small-Cap 600 ETF (SLY) tested a low of $74.55 with support at $74.50-$74 holding.
A prior trading range between $74-$75 lasted throughout July with the lows tapping $73.65 and $73.68 on back-to-back sessions to end the month.
A close below $73.75 and the 50-day moving average would likely lead to additional weakness towards $73 and shaky early July support.
Friday’s early morning peak reached $75.49. This level was tapped twice previously following the 52-week and all-time high of $75.55 in late July.
Continued closes above $75.50 would be a bullish development for a run towards $77-$77.50.
RSI is back in a slight downtrend with support at 55-50.
A close below the latter would be a bearish development for lower lows. Resistance is at 60-65 with the latter representing the early July top.
The Consumer Discretionary Select Spiders (XLY) rebounded out of a 5-session downtrend and backtest to the 50-day moving average with Friday’s top reaching $112.01.
Lower resistance is at $112-$112.50 held with additional hurdles at $113-$113.50. The recent July all-time high tapped $113.57. Near-term is support at $111.50-$111.
A close below the latter would signal a false breakout with risk back towards $110.50-$110.
RSI is back in an uptrend with resistance at 55-60. A close above the latter would signal renewed strength for a possible push towards 65-70 and mid-July highs.
Near-term support is in the 50 area with a sharp close below this level being a bearish development.
The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 65.14% with the high reaching 65.74%.
A trading range between 60%-70% has been in play for 3 weeks. The late July peaks reached 73.80% on back-to-back sessions with a close above and below the 70% level.
Continued closes above mid-June and upper resistance at 70%-75% would be a bullish development for a run towards 80% and possible January highs.
Lower support at 60% was breached on Thursday’s opening pullback on the S&P with the low tapping 55.64%. A close below 55% will likely be a good warning signal for additional weakness.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed at 70.87% and the session peak. A tighter trading range between 65%-70% has also been in the mix for 3 weeks with the close being the first time above the latter.
Continued closes above 70% would be a bullish development for higher highs on the Nasdaq. Early March resistance is at 75%-77.55% with a move above the latter getting 80% and possible January highs in play.
Upper support at 65% has been solid over this time period with a move below 62.5% being a warning sign for lower lows.
All the best,
Roger Scott.