Summer Storm Strikes
The war of words between the U.S. and North Korea sent the major indexes spiraling last week, the Dow Jones and the S&P 500 recording their second worst week of the year, the Dow falling 1.1% and the S&P 500 plunging 1.4%. The NASDAQ, which had already showed signs of a possible sell-off over the last few weeks, ended off 1.5%.
It took time but in the end the geopolitical tension between North Korea and the U.S. spilled over to Wall Street. On Thursday, investors fled from stocks and looked for refuge in gold and bonds; some market strategists think that the selling could resume. The fact of the matter is that it’s rather atypical to go a whole year without seeing a 5% correction, and such a correction is yet to surface on Wall Street since the high recorded in August of last year.
Take for example, the Swiss bank, UBS, which recommends that long-term investors whose horizon is measured in years, should take it easy and capitalize on every lower entry point to add to their stock holdings. At the same time, the bank’s recommendation to investors whose positions range from a number of weeks to a number of months, is to be a little more defensive.
It could be that we’re entering a longer period in which stocks will be vulnerable to higher-level volatility, when considering the tensions escalated by nuclear threat that activated selling pressure, pressure that some market investors had expected to surface invariably at some point this year.
In the event selling indeed continues, a correction of 5% from the latest high could send the index falling another 100 points, bringing it to the 2,337 point area, which coincides with the 200 period EMA. A more significant selloff of over 10% last surfaced on Wall Street in January-February 2016. All-in-all, Wall Street usually sees a price retreat at least once a year – a price correction once a year, and a bear market every 5 years, which would be a regression to the mean. A price retreat is defined as a decline of between 5-10% from the latest high. A price correction is defined as a decline of over 10% from the latest high, a bear market being when the stock market records a decline of over 20% from its latest high.
It’s indeed mid-August but this coming week features a number of important market catalysts, including retail chain sales on Tuesday and the release of the minutes from the Fed’s latest meeting on Wednesday. Wal-Mart (WMT) and Home Depot (HD), 2 of the best-performing companies in the retail sector, stand to report their Q2 results this week, along with a number of smaller retailers.
It goes without saying that the unexpected war of words between U.S. President Donald Trump and North Korea is likely to continue, and weigh on the market. The market will not miss a beat in responding over the short term to every sign of escalation or tapering in regards to geopolitical risk. At the same time, every expert in geopolitical events, will readily espouse that these spills are almost always buying opportunities.
The rampant geopolitical tension isn’t the only thing that investors are eyeing as possible triggers for a sell-off in a market which has not seen a price retreat already for 18 months, since February 2016. The catalyst for a price correction could be one of a long list of events, though one main worry is the expectation at play that central banks around the world will resume their policy of monetary tightening over the next few months. That’s likely to rattle markets which have rallied for 8 straight years, riding the wave of ultra-low interest rates.
The President of the European Central Bank (ECB), Mario Draghi, is expected to speak at the Fed’s annual Jackson Hole symposium which will be held on August 24th. Draghi is likely to signal that the change is impending and that the ECB is likely to provide further detail in its coming September meeting. The Fed symposium is an excellent opportunity for senior bankers to clarify their intents for lowering the U.S. central bank’s inflated balance sheet, while also expressing their views on inflation and future rate hikes. The lack of inflation, which also found expression in the CPI released last Friday, has made the market even more skeptical that the Fed can continue its streak of rate hikes in December.
Have a great trading week!
|Tuesday||8:30||Retail Sales||0.3 %||Medium|
|Tuesday||8:30||Import and Export Prices||0.2 %||Medium|
|Tuesday||10:00||Business Inventories||0.4 %||Medium|
|Tuesday||10:00||Housing Market Index||65||Medium|
|Wednesday||8:30||Housing Starts||1.225 M||Medium|
|Wednesday||10:30||Oil Crude Inventories||–||Low|
|Thursday||8:30||Jobless Claims||241 K||Medium|
|Thursday||8:30||Philadelphia Fed Business Outlook Survey||17.0||Medium|
|Thursday||9:15||Industrial Production||0.3 %||Medium|
|Thursday||10:00||Leading Indicators||0.3 %||Medium|
|AAP||Advance Auto Parts, Inc.||AM||Tuesday|
|DKS||Dick’s Sporting Goods, Inc.||AM||Tuesday|
|TJX||The TJX Companies, Inc.||AM||Tuesday|
|HD||The Home Depot, Inc.||AM||Tuesday|
|A||Agilent Technologies, Inc.||PM||Tuesday|
|CSCO||Cisco Systems, Inc.||PM||Wednesday|
|LB||L Brands, Inc.||PM||Wednesday|
|VIPS||Vipshop Holdings Limited||PM||Wednesday|
|MSG||The Madison Square Garden Company||AM||Thursday|
|WMT||Wal-Mart Stores, Inc.||AM||Thursday|
|BABA||Alibaba Group Holding Limited||AM||Thursday|
|GPS||The Gap, Inc.||PM||Thursday|
|ROST||Ross Stores, Inc.||PM||Thursday|
|AMAT||Applied Materials, Inc.||PM||Thursday|
|EL||The Estee Lauder Companies Inc.||AM||Friday|
|DE||Deere & Company||AM||Friday|
|FL||Foot Locker, Inc.||AM||Friday|
Today’s Picks – Day Trading!
New York Strategy Swing
Today’s Picks – Swing “New-York Strategy
No.1 – GRUB
|Sector||Technology | Internet Information Providers|
No.2 – SLCA
|Company Name||U.S. Silica Holdings|
|Sector||Basic Materials | Industrial Metals & Minerals|