Markets Stage a Dramatic Recovery

What a difference one week can make in the markets.

There is a saying, “if you don’t like the weather, wait 15 minutes. It will change.” This saying applies well to what we witnessed last week as the markets staged a massive comeback off of the extremely oversold levels seen a week prior. As leverage surrounding the ‘Yen-carry trade’ was worked out of the system, buyers began to come back to the market in droves as investors realized the sell-off was more related to market mechanics and less so the fundamentals. The bullish sentiment last week was magnified as both CPI & PPI inflation reports delivered positive results, and we got a much stronger number on the Retail Sales report than was expected. These reports helped to support the ‘Soft-Landing’ narrative as they demonstrated that inflation is still falling, while actual consumer spending is remaining resilient. This wave of buying drove the S&P 500 to a true V-shaped recovery, fully round-tripping the steep sell-off that began earlier this month. At market close on Friday, the S&P 500 closed on a 7-Day winning streak and at present levels, the index is now only a mere 2.0% from its all-time high set in early July. Taking stock of where the market stands according to the technicals, as of Friday’s close, 72% of S&P 500 stocks are in a long-term uptrend and trading above their 200-Day moving average. Additionally, the NYSE Advance-Decline Index made a series of new highs for the year to close out the week. Each of these metrics are supportive of the bull market’s health indicating that breadth is wide and strong. Even though historically we are still in a seasonally bad time of year for the market, because these market internals remain strong this is encouraging for where we will go during the rest of this year.

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Key Events to Watch this Week

Federal Reserve Jackson Hole Retreat
‘Minutes’ of July Fed meeting
Initial Jobless Claims
PANW, LOW, & TJX Q2 Earnings

Across the board, essentially all of the major events we were watching last week delivered results that were exactly what the market was hoping for. Each of the positive economic reports and earnings results helped to sooth investor’s worries about the U.S. economic outlook and provided support for bullish sentiment in the market. This week the main event no doubt will be the Federal Reserve’s Jackson Hole meeting, which will be headlined by Fed Chair Jerome Powell when he delivers his keynote speech on Friday morning. Investors will be tuned into this speech as they hope Chair Powell uses this occasion as an opportunity to lay the groundwork for a policy rate cut at the upcoming meeting in September. Additionally, there will be some more Fed-related news that our team will be paying attention to this week as the ‘Minutes’ from the July meeting will be made public. After last week’s initial jobless claims came in lower than expected, which was welcome news for investors, since initial claims have been trending up over the past seven months, this report will surely draw attention until this trend reverses or moderates. Finally, there are a few earnings reports due this week that our team is keyed in on. Top cyber-security company, Palo Alto Networks Inc. (PANW) and two major retailers, Lowes Companies, Inc. (LOW) & TJX Companies, Inc. (TJX) are all due to report their Q2 results. Investors will be looking to PANW’s report as a gauge on the durability and trajectory of top cyber-security software earnings. The retail earnings expected this week will provide insight not only into the specific companies but also provide some additional read-throughs into the U.S. consumer.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,