A quiet economic calendar, relatively sparse earnings landscape in the pre-opening, the lack of “Fed Speak”, and void of attention grabbing headlines focused on geo-political risk have combined to provide a largely flat U.S. equities terrain thus far today. European markets closed mixed. In addition, I would suggest that market participants are also still in the midst of digesting last week’s volatility and subsequent lurch lower in equity prices.
As always, last week, there was an inverse relation between prices (lower) for stocks and the price (higher) of risk protection. The S&P 500 slipped almost 3% last week. The sharp rise in the VIX last week took many, though not all, investors by surprise. Last week the VIX jumped 33% to register a handle above 17 for the first time in months. That shift higher in the fear gauge has a way of chasing the faint of heart out of the market at precisely the moment that value emerges. That is particularly true when investors have become accustomed to subdued volatility – conditioned to calm. Many expect to see more of the same uneven trading and risk aversion for good reason though I do think markets have discounted the headlines and what is largely known.
Unresolved issues around the globe remain a major factor for markets at the moment. Continued conversation in regards the tempo and tone of improving economic data also provide for plenty of interpretation as to the timeline for the long awaited shift higher in rates. However, this earnings season narrative has been playing out fairly consistently – effectively taking some uncertainty off the table for investors. Better than expected Q2 earnings results in 68% of those reporting in the S&P 500 thus far. Improving sales for 57% of those reporting in the S&P 500 and guidance that speaks to confidence, visibility and modest, manageable expansion. Also as we have discussed, the economic data released to date has buttressed the earnings narrative in a very complimentary way.
Intraday S&P 500 Sector heat Map:
Consumer Discretionary + 0.79%
Energy + 0.53%
Information Technology + 0.41%
Materials + 0.37%
Financials + 0.30%
Consumer Staples + 0.18%
Health Care FLAT
Industrials – 0.20%
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