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TRADING THE WEEK: Volume Falls But Bullish Sentiment Remains

Traders Magazine Online News, July 17, 2017

John D'Antona Jr.

Buy in May and go away?

That seems to be the prevailing sentiment on Wall Street trading desks as several traders reported thin dealings last week and expect more of the same this week. While the DJIA Industrial Index set new record highs on Thursday and pushed fresh highs on Friday, S&P 500 and NASDAQ comp are knocking on the door to new highs as well. But that failed to generate much trading activity. Stocks across the globe traded higher Thursday after Fed chair Janet Yellen struck a slightly less hawkish tone than expected, emphasizing her concerns about low inflation. During her testimony, Fed Chair Janet Yellen urged Congress to take into account the growth trajectory of the federal debt when making decisions about spending and taxation.

Also, earnings season for the second quarter began last week and will be in full swing this week – continuing to keep a lid on activity. And speaking of volume, trading last week dropped below 6 billion shares to an average of 5.91 billion shares, compared to the 6.37 billion shares the week prior, according to BATS Global Markets. Three weeks ago, volume was 7.46 billion shares per day, according to Bats.

Equities, despite the current summer malaise, can still find support as many are too afraid to sell in a flat to rising rate environment. Just Friday, Credit Suisse raised its year-end forecast for the S&P 500 and told investors to "stick with equities." In a note the broker published, its head of global equity said "the bull market will continue" because interest rates will remain low, earnings will come in stronger than expected and the normal signs of a peak in the credit cycle are simply not there.

Quoted first on CNBC, the analyst, Andrew Garthwaite, said that perhaps the most important factor of the current bull market is a slowdown in wage growth.

"The critical issue is that the acceleration in U.S. wage growth that had been evident has slowed down," he said. He went on to say the labor force is "unlikely" to command more pricing power until other, tighter labor markets like the United Kingdom or Japan experience acceleration in wage growth.

Larry Peruzzi, Managing Director International Equities at Mischler Financial reported Traders and investors returned last week from the previous holiday-shortened week on Monday with the same resolve – not to do much.

“They were not willing to outright sell and not looking to make large bets,” Peruzzi began. “As a result, U.S and global markets resumed their slow, steady and non-volatile rise to new records. The MSCI all country world index closed Thursday at an all-time high. Thursday’s June PPI data was largely in line which failed to move the markets.”

Also, adding credence to the no Fed for a while sentiment, the consumer price index, measuring what consumers pay for everything from apparel to used cars, was unchanged in June from the prior month. From a year earlier, the CPI was up 1.6 percent, the fourth month of surprising weakness. Excluding food and energy, the core prices rose 0.1 percent, compared to expectations of 0.2 percent.

Also, retail sales fell 0.2 percent in June, down for a second straight month. The back-to-back monthly decline was the first time two months in a row posted lower consecutive gains since last summer.

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