Wall Street Edging Higher, Awaiting Clearer Picture

By Joyce Yu

Markets are settling down after a tumultuous week. Global equity markets were traded in a narrow range Tuesday with the Dow finished just 1 point shy of 22,000-milestone.

Wall Street seemed to have no clear direction yesterday, where the Dow edged up a tiny 0.02 percent. The S&P 500 lost 0.05 percent and the Nasdaq 0.11 percent respectively.

Economic indicators, on the other hand, keep sending positive signals.  U.S. retail sales rose the most in seven months in July as consumers spent more on 10 of 13 retail sectors.  Upward revisions to sales for both May and June dispelled concerns that consumption is slowing down and raised economic growth outlook.

The latest European data showed more nations joining the recovery as the euro-area economy gathers pace. According to a Bloomberg’s report, Italy’s economy expanded for a 10th straight quarter, while growth in the Netherlands beat economists’ estimates. Eastern European economies including Romania, the Czech Republic and Poland also exceeded expectations, confirming that a broad-based recovery is taking hold.

Strong economic data put a rate hike back on the agenda.

ANZ economist Daniel Gradwell told the Reuters, “The early Q3 data has served as a reminder that the U.S. expansion is robust.  The majority of the Fed are of the view that as long as that remains the case, underlying inflation pressures will gradually intensify and policy normalization is appropriate.”

A Financial Times report shows, however, that everything is not as rosy as it looks by providing an analysis of five charts.

It reported the percentage of US stocks trading above their 200-day moving average, although still remaining above 50 per cent, is falling sharply as the S&P remains close to its record high. It adds to other evidences showing “a narrowing in the leadership of what is an ageing bull market”.

John Hussman, a fund manager who has been confidently bearish for several years, wrote in his blog that “the deterioration and widening dispersion in market internals is no longer subtle”.

In addition, S&P 500 companies that have released strong earnings and sales and beat forecasts have had little or no reward, and failed to outperform the wider index.

Savita Subramanian, equity strategist with Bank of America Merrill Lynch, told the Financial Times, “The reward for beats has been small or nonexistent across all 11 sectors this quarter. This lack of a reaction could be another late-cycle signal, suggesting expectations and positioning already more than reflect good results/guidance.”


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