Bracing for tomorrow’s economic numbers in the nervous environment

Updated on

Commenting on today’s trading with a focus on economic numbers, Gorilla Trades strategist Ken Berman said:

Even though stocks held on to most of their gains from yesterday, there were a few worrying signs ‘under-the-hood’, so choppy trading might continue in the coming sessions. Small-caps performed for the fourth day in a row, and while some other risk-measures haven’t confirmed the ‘flight-to-safety’, tomorrow’s highly-anticipated economic numbers could be very important in the nervous environment.”

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q2 hedge fund letters, conference, scoops etc

The major indices all finished lower following yesterday’s broad rally, as the contradicting trade-related headlines and the political tensions in Washington led to another tense session. The Dow was down 80 or 0.3%, to 26,891, the Nasdaq lost 47, or 0.6%, to 8,031, while the S&P 500 fell by 7, or 0.2%, to 2,978. Decliners outnumbered advancing issues by a 5-to-4 ratio on the NYSE, where volume slightly below average.

Sectors diverge ahead of key economic numbers

The key sectors diverged substantially today, similarly to Tuesday’s bearish session, and apart from consumer goods, the risk-on sectors lagged the broader market. The utilities sector was the star of the day, yet again, and the most popular XLU ETF hit another new all-time high. The defensive sector has been enjoying inflows all year, and it got another boost this week, thanks to the pullback in the price of oil and the slight risk-off shift. The Volatility Index (VIX) was flat despite the negative day for the major indices, and the fact that European stocks had a blowout session is also a positive sign for tomorrow.

Stocks are having their second very choppy and nervous week in a row, even though September usually brings strong trends after the summer lull. Last week, the Fed’s rate decision and the Saudi attack made traders cautious, while this week, the political uncertainty has been behind the choppy price action. Despite the directionless days, the major indices are still within striking distance of their all-time highs, and in the second half of October, equities will enter a very favorable period in terms of seasonality.

Consumer economic numbers in focus

The holiday season is usually all about the consumer economy, and even though the CB consumer confidence number missed expectations last week, most of the indicators remain clearly positive ahead of the key period. The trade war with China could have an impact on holiday spending, and today we got further mixed reports regarding the outlook for next month negotiations. The news that some of the waivers that the suppliers of Chinese giant Huawei got won’t be renewed sent stocks tumbling, but the optimist words of the Chinese Foreign Minister boosted equities in late trading.

We will have the busiest session of the week tomorrow in terms of economic numbers, with two crucial reports coming out before the bell. Durable goods orders will be especially important, due to the recent mixed releases from the struggling sector, and core orders are expected to increase by 0.2% despite last month’s decline. Personal spending and the Core PCE Price Index will also be out, and since the Fed’s statement put an emphasis on the muted inflationary pressures, the latter could cause turmoil across asset classes.

Technical Corner.

The most reliable trend indicators are still mostly bullish, even though the short-term picture remains mixed due to the recent choppy period on Wall Street. The major indices are all well above their rising 200-day moving averages of 7,691 for the Nasdaq, 2,831 for the S&P 500, and 25,796 for the Dow. The indices remain close to their 50-day moving averages of 2,959 for the S&P 500, 8,046 for the Nasdaq, and 26,586 for the Dow, and the tech benchmark closed slightly below its short-term indicator again.

The consumer goods sector has been relatively strong throughout the year and Nike (NKE) has been among the best-performing stocks in the sector. Yesterday, the stock surged to a new all-time high, thanks to the company's blowout quarterly report, and the technical breakout could be the precursor of broader move above the July highs. The indices usually follow in the footsteps of the leaders, and while some of the top-performing stocks got hit hard in the first week of this month, Nike's quick recovery supports the bullish case. Stay tuned!

Leave a Comment