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TRADING THE WEEK: Focus Turns to DC, Payrolls
Traders Magazine Online News, July 31, 2017
Buy in May and go away.
That seems to be the prevailing sentiment on Wall Street as traders were quiet again this week as earnings, economic data, Fed speak and cash flows all signaled a market that has inflation under control and is growing a moderate pace.
Yawn. No surprises. No volatility. No trade.
“We have been seeing a decent amount of shorts being squeezed and retail investors, who have been on the sidelines, are putting more money to work as they try to ‘catch up’,” began Larry Peruzzi, Managing Director International Trading at Mischler Financial Group. “These points, as well as an S&P P/E ratio of 21.4 tend to be overbought signals and bears will try to make sell arguments.”
But no one is selling, Peruzzi added, as low rates, low inflation and low oil prices all conspire to make selling into the current bull market seem like a mistake. Investors are starting to be cautious in their purchases but Peruzzi doesn’t see any definitive “sell” signs – thus no real market correction event on the horizon.
Looking back at last week, trading volume rebounded above the 6 billion share per day level as traders got busier as the summer wears on. Traders reported volume jumped up to 6.58 billion shares, compared to the 5.63 billion shares the week prior, according to BATS Global Markets.
On the interest rate front, the Federal Reserve decided not to raise short-term interest rates at its policy meeting last week. Relatedly, it added that says it isn't ready to start reducing the size of its bond portfolio but the process will get underway "relatively soon" if the rate of moderate economic growth holds up.
In the markets, the S&P 500, NASDAQ and Dow Industrials hit all-time highs last Wednesday.
Looking ahead, Peruzzi expects focus to turn to Washington as the Senate will likely again attempt to overturn the Affordable Care Act - causing many to question the ability of the Trump agenda to move forward. Also, White House staff infighting and personnel turnover will prove to be an interesting distraction for traders, Peruzzi said.
The markets can expect a mostly quiet week as Friday brings the July employment payrolls data and another 113 companies report earning next week with the bulk doing so after the market closes on Tuesday and Wednesday.
“Investors will be best served by being cautious as some strategist are calling the markets expensive, overbought and ready for a correction but the data is showing us continued growth and low volatility and inflation,” Peruzzi said. “Although we are late in the bull run we continue to seeing opportunities in sector rotation as well as in old fashion stock picking.”
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