U.S. stocks ended mixed on Monday (I think I have my days right now) as the Dow and S&P 500 gained ground, while the NASDAQ Composite was held back by a decline in technology shares. A better-than-expected reading on service-sector activity for June helped buoy the market.
After spending nearly the entire session in the red, the broad market (as measured by the S&P 500) rallied in the final minutes of trading to close above the day’s opening price. Market weakness just prior to the release of the day’s sole economic reading suggested things were going to get ugly if that number was to miss the expectation; when it beat, most stock prices began to slowly improve and picked up steam in the final half hour.
The traditional areas of safety, consumer staples, utilities and health-care shares were among yesterday’s top performers. Energy, basic materials and tech were the biggest losers. We talked about the likelihood of sector rotation taking place a couple of weeks back, out of the reflation trade of oil and basic material shares and into consumer staples, health-care and utilities. We’ll see if this move has some legs this time.
Volume remained weak on Monday as just 1.1 billion shares traded on the NYSE Composite, 21% below the three-month average. Ten shares fell for every seven that rose on the Big Board.
Market Activity for July 6, 2009
Crude-Oil
Crude for August delivery continues to pull back after its steep 70% run up from $34 to $73 that occurred in just four months. Oil continues to trade on prospects for GDP, and with concerns that the economic rebound may be delayed (at least in terms of the recent consensus estimate) its moving lower again, down 4% on Monday to $64 per barrel. Of course, some of this is just natural profit taking after such a powerful move higher.
I’m not even going to try to guess where crude goes from here. Supply/demand fundamentals probably don’t justify a price higher than $50-55 per barrel, but we’ve got massive deficits and very easy monetary policy to think about. These policies should affect the dollar’s value over time, pushing it lower, and this will have the opposite result on commodity prices. If the dollar does trend lower over the next couple of years, one wonders if what has become the anti-dollar trade (the euro) will continue as the Eurozone is going be burdened with lackluster growth prospects for some time. This means the commodity play may work as the anti-dollar trade for the next 18-24 months and that means higher oil prices, but probably not before an additional pullback as is typically the case after surges, such as the one we’ve seen over the past three months.
ISM Service Sector
The Institute for Supply Management’s (ISM) service-sector gauge continued to show improvement as the reading for June came in at a better-than-expected 47.0 – three percentage points higher than the May reading of 44.0 and a pretty darned good number considering the state of things.
While a reading below 50 suggests the service sector remains in contraction mode (for the ninth-straight month now), continued improvement is obviously a good sign but like so many data releases these days there’s always something that diminishes an attempt at relative optimism. Six of the 18 industries the index covers reported business grew in June, which is unchanged from May and down from seven in April. One would certainly want to see a steady trend of improvement here.
This headline reading of 47.0 is a composite of several sub indices: business activity, new orders, prices and employment. These individual indices are important to also view separately as a gauge of where things are going from here.
The business activity reading came closer to hitting 50 than anytime since the economic world changed in September, posting a reading of 49.8 after the 42.4 in May.
New orders, one of the best indicators of future activity, hit 48.6 after posting 44.4 (and a drop from the April reading) in May.
The employment index rose to 43.4 in June from 39.0 in May. Five industries reported an increase in employment (Real Estate, Rental & Leasing, Entertainment & Leisure, Agriculture and Forestry), eight reported a decrease and four reported no change.
The prices paid index moved above 50 for the first time since October, hitting 53.7 – this may be something to watch. We’re far from the level of 80 hit when last summer’s commodity spike pushed the CPI to 5.6% on a year-over-year basis, but I don’t think it will take much to juice prices again, and the ISM prices paid figures will be a key number to watch.
The inventory sentiment reading jumped to 67.0 from 62.5, which means more industries view their level of stockpiles are too high at this time – this reading likely completely offsets the improved reading in the new orders index; with respect to the outlook for the next couple of headline ISM readings. If firms continue to believe inventories are too high, it’s tough to make the argument that new orders will trend higher.
The export index hit 54.5 and was the brightest aspect of the report (remember that very targeted Asian stimulus, led by the Chinese, we’ve been talking about) as the Chinese spending may be starting to show up in this figure.
Corrections:
Beyond referring to all of Thursday’s activity as Friday’s in yesterday’s letter – sorry about that, it’s habit I guess, I also reported the wrong number on the duration of unemployment (in weeks). The numbers I posted were from the previous month when stating: “The mean duration of unemployment (in weeks) made another new high since this series began in 1947, moving up to 22.5 weeks from 21.4.”
The correct number is 24.5 weeks, jumping by the largest amount since the recession began, up from 22.5 weeks in May.
Have a great day!
Brent Vondera
After spending nearly the entire session in the red, the broad market (as measured by the S&P 500) rallied in the final minutes of trading to close above the day’s opening price. Market weakness just prior to the release of the day’s sole economic reading suggested things were going to get ugly if that number was to miss the expectation; when it beat, most stock prices began to slowly improve and picked up steam in the final half hour.
The traditional areas of safety, consumer staples, utilities and health-care shares were among yesterday’s top performers. Energy, basic materials and tech were the biggest losers. We talked about the likelihood of sector rotation taking place a couple of weeks back, out of the reflation trade of oil and basic material shares and into consumer staples, health-care and utilities. We’ll see if this move has some legs this time.
Volume remained weak on Monday as just 1.1 billion shares traded on the NYSE Composite, 21% below the three-month average. Ten shares fell for every seven that rose on the Big Board.
Market Activity for July 6, 2009
Crude-OilCrude for August delivery continues to pull back after its steep 70% run up from $34 to $73 that occurred in just four months. Oil continues to trade on prospects for GDP, and with concerns that the economic rebound may be delayed (at least in terms of the recent consensus estimate) its moving lower again, down 4% on Monday to $64 per barrel. Of course, some of this is just natural profit taking after such a powerful move higher.
I’m not even going to try to guess where crude goes from here. Supply/demand fundamentals probably don’t justify a price higher than $50-55 per barrel, but we’ve got massive deficits and very easy monetary policy to think about. These policies should affect the dollar’s value over time, pushing it lower, and this will have the opposite result on commodity prices. If the dollar does trend lower over the next couple of years, one wonders if what has become the anti-dollar trade (the euro) will continue as the Eurozone is going be burdened with lackluster growth prospects for some time. This means the commodity play may work as the anti-dollar trade for the next 18-24 months and that means higher oil prices, but probably not before an additional pullback as is typically the case after surges, such as the one we’ve seen over the past three months.
ISM Service Sector
The Institute for Supply Management’s (ISM) service-sector gauge continued to show improvement as the reading for June came in at a better-than-expected 47.0 – three percentage points higher than the May reading of 44.0 and a pretty darned good number considering the state of things.
While a reading below 50 suggests the service sector remains in contraction mode (for the ninth-straight month now), continued improvement is obviously a good sign but like so many data releases these days there’s always something that diminishes an attempt at relative optimism. Six of the 18 industries the index covers reported business grew in June, which is unchanged from May and down from seven in April. One would certainly want to see a steady trend of improvement here.
This headline reading of 47.0 is a composite of several sub indices: business activity, new orders, prices and employment. These individual indices are important to also view separately as a gauge of where things are going from here.The business activity reading came closer to hitting 50 than anytime since the economic world changed in September, posting a reading of 49.8 after the 42.4 in May.
New orders, one of the best indicators of future activity, hit 48.6 after posting 44.4 (and a drop from the April reading) in May.
The employment index rose to 43.4 in June from 39.0 in May. Five industries reported an increase in employment (Real Estate, Rental & Leasing, Entertainment & Leisure, Agriculture and Forestry), eight reported a decrease and four reported no change.
The prices paid index moved above 50 for the first time since October, hitting 53.7 – this may be something to watch. We’re far from the level of 80 hit when last summer’s commodity spike pushed the CPI to 5.6% on a year-over-year basis, but I don’t think it will take much to juice prices again, and the ISM prices paid figures will be a key number to watch.
The inventory sentiment reading jumped to 67.0 from 62.5, which means more industries view their level of stockpiles are too high at this time – this reading likely completely offsets the improved reading in the new orders index; with respect to the outlook for the next couple of headline ISM readings. If firms continue to believe inventories are too high, it’s tough to make the argument that new orders will trend higher.
The export index hit 54.5 and was the brightest aspect of the report (remember that very targeted Asian stimulus, led by the Chinese, we’ve been talking about) as the Chinese spending may be starting to show up in this figure.
Corrections:
Beyond referring to all of Thursday’s activity as Friday’s in yesterday’s letter – sorry about that, it’s habit I guess, I also reported the wrong number on the duration of unemployment (in weeks). The numbers I posted were from the previous month when stating: “The mean duration of unemployment (in weeks) made another new high since this series began in 1947, moving up to 22.5 weeks from 21.4.”
The correct number is 24.5 weeks, jumping by the largest amount since the recession began, up from 22.5 weeks in May.
Have a great day!
Brent Vondera
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