After more than 40 weeks of the DJIA fluctuating less than 1%, the index broke out of its summer slumber with three of six trading days representing more than a 1% move. Federal Reserve President speeches prompted investors with the unsettled sentiment to sell their stocks on Friday, September 9 driving down the DJIA almost 400 points. Investors, encouraged by Lail Brainard, Federal Reserve Governor, who opined caution in raising Fed Fund rates during her speech on Monday, September 12, returned to the buying table driving up DJIA over 200 points. A choppy market action continued with the index ending with a 0.2% weekly gain. Wednesday of this week is a crucial day for investors as both the Federal Reserve and the Bank of Japan will be announcing interest rate policies.
The DJIA index along with the S&P 500 remain below their 50 days moving average (meaning the index price is below its past 50-day average price) but above its 200 days moving average.
As investors worried about a possible Federal Reserve interest rate hike, they also wrestled with conflicting economic data released last week. Good news is that jobless claims continued their downward trend, but new job growth of 161,000 came in below expectations on Friday.
NASDAQ was helped last week by Apple’s (AAPL) best week in five years rallying 11% to $114. Two weeks earlier investors sold the stock driving prices down 5% after the release of their new iPhone 7 driving. Reviews are moderately positive about the new phone with incremental improvements, and the jury is still out if consumers will live without a headphone jack.
With or without the new iPhone 7, the consumer continues to avoid the malls and auto dealerships as indicated by slowing retail sales. Even though gas prices are steadily holding at $2.40/gallon in local areas, retailers are hoping that consumers are simply saving their money for holiday gifts.
We wrote about the retail space in August regarding the challenges for retailers to determine their inventory buildup for holiday sales based on predictions of consumer spending. Now just three months away there is not any more clarity for this holiday season. Based on the Business Inventories-to-Sales Ratio released last week indicating declining inventory, it appears retailers are hedging against a slow holiday season.
WHAT DOES THIS MEAN TO ME?
A volatile market is a heaven for high-frequency traders and challenging for inpatient longer term investors. The S&P 500 has increased just above 5% since the Federal Reserve discontinued their QE3 stimulus program in December 2014. Since then the economy and stock market has experienced an abrupt halt in growth. Candidates are in high form soliciting supporters as they campaign their theories to revive the economy. Our view supports the Federal Reserve position that significant fiscal policy reform with a focus on business-friendly legislation is all that is needed to turn the tide of slow growth. However, investors favor the more immediate and rewarding to the wealthy release of government and Federal Reserve stimulus dollars. Voters, confused and largely unaware of economic fundamentals, will determine the future of their communities and nationally as they cast their ballots for politicians to represent them both locally and in Washington. For now, the stock market indices need to hold above their 200-day moving average to retain investor’s confidence and reduce the fear of a year-end market collapse.