|
The S&P 500 closed at 2,076.62 on Friday, up 1.23% along with the Shanghai composite index, which rocketed 4.54% higher for the second day in a row to close at 3,877.803, after the People's Bank of China (PBoC) announced unprecedented market interventions on Wednesday. The PBoC said it will provide liquidity to the government-owned margin lender China Securities Finance Corp (CSFC) so that the CSFC can give credit lines to 21 brokerage houses to purchase Chinese equities to stop the markets from crashing further. The bears are skeptical though, as 40% of all Chinese stocks are now halted. The selling could resume if those stocks are opened for trading.
For the week, the S&P 500 was down 0.16 points as the index weighed U.S. and overseas economic data, particulary from China and Greece.
The U.S. economy is showing some signs of weakness again as the Institute for Supply Management (ISM) said on Monday that its non-manufacturing index rose to 56.0% last month, from 55.7% in May, missing Wall Street's expectations of a 56.3% rise. A reading over 50% indicates more companies are expanding. Their Employment index fell to 52.7% from 55.3% in May, reflecting growing employment levels from May at a slower rate, said the ISM.
The U.S. Job Openings and Labor Turnover Survey (JOLTS) report, released by the BLS on Tuesday, said that the number of job openings rose to 5.4 million on the last business day of May, unchanged from April, the highest since the series began in December 2000. Over the 12 months ending in April 2015, hires totaled 60.2 million and separations totaled 57.4 million, yielding a net employment gain of 2.8 million. The bottom line is that job openings are at a record, but workers aren’t quitting for them, according to MarketWatch.
The S&P 500 tumbled 1.67% on Wednesday after the release of the minutes from the Federal Open Market Committee (FOMC), despite the fact the Fed minutes are vague on what will spark a rate hike. The Fed minutes, however, warned about the pace of growth beyond the U.S., specifically in China, as well as turbulence that could result from the Greek debt crisis.
The International Monetary Fund (IMF) said on Thursday that it trimmed down its estimated global growth for 2015 to 3.3% from 3.5% growth, citing weaker-than-expected economic activity in the U.S. during the first quarter. The IMF gave a warning to the Federal Reserve, for the second time, that it risks stalling the U.S. economy by raising interest rates too early and called for the central bank to delay a move until 2016. Last month, both the IMF and the World Bank urged the Fed not to hike the rate until 2016.
Charles Evans, the president of the Chicago Federal Reserve, told a group of reporters at a breakfast meeting on Thursday, that he doesn’t want to increase interest rates until mid-2016, citing risks from Europe, China and emerging markets.
On Friday, Federal Reserve Chair Janet Yellen said in a speech that she expects the Fed to raise interest rates at some point this year, but pointed strongly to her concerns that U.S. labor markets remain weak and that more workers could be encouraged back into the job market with stronger growth. Her comments sparked a bond sell-off, as the U.S. 10-Year Treasury Note yield tumbled 4.34% to 2.401% on Friday.
Despite urgings from the IMF and the World Bank for the Fed not to hike rates until 2016, some Fed members are eager to hike the rate in September as they may be concerned to fall behind the curve. Another concern is that the Fed could be running the risk of losing control of bond yields if they don't do anything after a lot of hype. Since the Fed's committee removed the key word "patient" from its March 18 statement, the 10-year U.S. Treasury yield has skyrocketed 24.35%, from 1.93% on that day, to 2.4% on Friday.
Greek people finally know what the vote “No” means after Greece’s parliament approved Prime Minister Alexis Tsipras’ bailout proposals late Friday. Some said that the €53.5 billion bailout package with harsh austerity terms was remarkably similar to the one Greek voters rejected in a referendum a week ago. In practice, the Greek people should have voted “Yes” last week, in order to avoid economic hardship and to gain some credibility from the European partners.
The European finance ministers will make their final decision on Saturday whether Greece will receive its third financial bailout. The EUR/USD exchange rate inched up 1.14% to 1.1162 dollars per euro on Friday as traders covered their short positions ahead of the European finance ministers meeting. The perception that the Greek bailout deal is kicking the can down the road again, could spur another euro sell-off on Monday.
The U.S. dollar index inched down 0.12% for the week, to close at 96.172 on Friday, despite the Greek debt drama and China’s stock market turmoil. The 10-year U.S. Treasury yield jumped 0.83% for the week, to close at 2.42% on Friday, as the probability of a Fed rate hike in September is back on the front burner again.
The best performing S&P 500 sectors for the week were Consumer staples and Utilities, up 2.0% and 1.49%, as investors rotated money out of high risk sectors into safe havens while both sectors offer attractive dividends. Altria Group [NYSE:MO] and Costco Wholesale Corp. [NASDAQ:COST] lead the consumer staples rally. MO and COST jumped 4.72% and 4.64%, respectively.
The worst performing sectors for the week were Materials and Telecommunication services, down 1.64% and 1.57%, respectively. Investors worry that a collapse in Chinese stocks will lead to a broader downturn in the real economy of China, the world’s top consumer of industrial metals. AT&T [NYSE:T], a top constituent of S&P 500 Telecommunications, lead the sector down 3.05%.
From our long-term technical viewpoint, the S&P 500 has been moving in a bearish ascending brodening triangle since late 2013. The rising wedge also emerged in the S&P 500 chart in October 2014. The rising wedge broke down at the end of June, meaning more downside may be coming. If the S&P 500 makes a further pullback, there are several supports between 2,056 and 2,000. The bottom of the bearish ascending brodening triangle is 1,919, or a 7.8% decline from here.
S&P 500 Summary: +0.86% YTD as of 07/10/15
Barclay Hedge Fund Index: +3.56% YTD
Outperforming Sectors: Healthcare +9.88% YTD, Consumer discretionary +7.55% YTD, and Consumer staples +1.06% YTD.
Underperforming Sectors: Information technology –0.07% YTD, Telecommunication services –0.12% YTD, Financials –0.44% YTD, Materials –1.92% YTD, Industrials –4.01% YTD, Energy –8.24% YTD and Utilities –9.11%
YTD. |
