Weekly Outlook - 08-23-2010
Monday, August 23, 2021 10:12 AM

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Riskier assets performed poorly last week as investors moved out of equities and commodities and moved into safe havens such as government bonds and the dollar. Gold was a standout commodity, where oil bore the brunt of investor's fear that the global economies are beginning to slow down. For the week, the S&P 500 Index declined by 7 points, or .7 percent.

Summary


Initial unemployment claims rose by 12,000 to 500,000 in the week ended Aug. 14, the Labor Department said in its weekly report Thursday. It was the highest level since Nov. 14, when claims stood at 509,000.  The four-week moving average, which aims to smooth volatility in the data, rose by 8,000 to 482,500. It was the highest level since December 2009. The number of continuing claims-those drawn by workers for more than one week-fell by 13,000 to 4.5 million in the week ended Aug. 7.  Additionally, The Federal Reserve Bank of Philadelphia's regional business survey plummeted and an index of leading indicators increased a slight 0.1% last month after falling a revised 0.3% in June, according to the Conference Board.  The Philadelphia Fed manufacturing index fell to -7.7 in August compared with 5.1 in July. Signs of weakness in manufacturing are concerning because it's one of the few sectors of the economy that has continued to show strength-and to add jobs.  The Philly Fed Survey was in contract to the Industrial Production number and Capacity Utilization which where released early in the week.  Industrial Production increased by 1% for the month of July compared to expectations of .7% increase.  Capacity Utilization also increased.  The New York Empire State Manufacturing number also show signs of a solid manufacturing market.  Investors are having a difficult time grappling with the contrasting numbers.  Most importantly, the job market has been having a rocky time, which has created a lot of trepidation.  

The oil market has been trading in lock step with the equity markets, and investors liquidated long positions during the course of the week.  Crude oil stocks declined by .8 million barrels during the week ending 8/13/10, according to the Department of Energy, which was within the range of expectations, but a much different number than reported on Tuesday evening by the American Petroleum Institute.  The API reported a build of 5 million barrels, which sent the oil market tumbling down to $74 per barrel early in the trading session.  The negative API numbers pushed down oil and gas stocks globally, which had a direct effect on the US and European markets.

Technical Picture


The S&P 500 Index continued to move lower, pushing through the 50-day moving average, and lingering as the bottom end of the 1060 - 1130 range.  Equity markets have been pushed and pulled but are unlikely to move higher or lower until investors see continued momentum.  The Gold market was a strong beneficiary during the week as investors are uninterested in continuing to earn a very small yield on US Treasuries, and is also unwilling to put money to work in the equity markets.  Gold prices where able to push higher reclaiming the 1225 level.  The 20-day moving average will probably cross the 50-day moving average next week, which will add momentum to the gold price move.

Market Outlook


The coming week does not have a lot of economic data for investors to absorb, and given the markets conflicting signals, riskier assets are not likely to move any lower.  Market participants are torn between robust earnings numbers and less than desirable economic data points.  Although manufacturing and retail sales seem to be robust (same store sales have been better than expected as well), employment and housing have been less than desirable.  The conflicting fundamental signals is the main reason why the markets has been stuck in a 70 point S&P 500 Index range for the past few months.  Bulls are determined to hang their hat on earnings growth, while bears are comfortable with the view that poor economic data will eventually spill over into earnings.  Additionally, acquisitions and merger activity is picking up, which is a function of better than expected corporate outlooks, and very inexpensive capital.  Corporations are able to borrow at very low rates, which is helping earnings and expansion.

Key Economic Events and Earnings


Monday:
Earnings from Sanderson Farms, Inc. (NASDAQ: SAFM) and Tuesday Morning (NASDAQ: TUES) will be in the
spotlight.

Tuesday: Barnes & Noble (NYSE: BKS), Big Lots (NYSE: BIG), Burger King (NYSE: BKC), Medtronic, Inc. (NYSE: MDT) and Trina Solar (NYSE: TSL)     are slated to report their earnings.

On the macroeconomic front, existing home sales will be reported for July in the morning. Economists expect existing home sales to decrease to 4.75 million.

Wednesday: American Eagle (NYSE: AEO), Toll Brothers (NYSE: TOL), JDS Uniphase (NASDAQ: JDSU), TiVo Inc. (NASDAQ: TIVO), and Guess Inc. (NYSE: GES) are on the earnings scoreboard.

Durable orders data is due for release at 08:30 am. Durable goods orders are expected to rise 0.5 percent in July, compared with June's decline of 1.2 percent. Durable goods are manufactured goods such as washing machines, intended to last three years or more.
 New Home Sales report will be released shortly after the opening bell.

The Energy Information Administration will publish its Petroleum Status Report at 10:30 am ET.

Thursday: A-Power Energy (NASDAQ: APWR), Aruba Networks (NASDAQ: ARUN) and OmniVision (NASDAQ: OVTI) are due to release quarterly earnings on Thursday.

The weekly jobless claims report from the Department of Labor is due in the morning. Roughly 485,000 Americans are expected to have filed new claims for unemployment last week versus 500,000 in the previous week.

Friday:  Jewelry retailer Tiffany & Co. (NYSE: TIF) and tanker operator Frontline Ltd. (NYSE: FRO) are scheduled to report quarterly results on Friday.

The Commerce Department will release second estimate of second quarter GDP before the opening bell on Friday. The Thomson Reuters/University of Michigan will release its final August index of consumer sentiment at 09:55 am ET. Economists forecast a reading of 69.4, compared with 69.6 in the preliminary August report.
 

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