Seasonal:
Bearish. August is the worst DJIA and S&P 500 month during 1988-2020 and second worst for NASDAQ. In post-election years since 1950, August is still ranked no higher than #11 while average performance slips deeper into negative territory. The Summer Volume Doldrums historically span all of August as traders and investors escape the office and head out on vacations.
Fundamental:
Softening. U.S. Q2 GDP (Advanced) came in below expectations in July at 6.5%. Weekly initial jobless claims appear to be plateauing right around 400,000 possibly ending the trend of falling claims. Corporate earnings in Q2 have been solid, but Q3 year-over-year comparisons are likely to be more challenging. The Delta variant of the coronavirus that causes Covid-19 is rapidly spreading causing yet another wave of cases while domestic daily vaccination numbers are falling. The increase in cases is triggering new mask mandates and causing some employers to delay the return to the office.
Technical:
Breakout stalling? DJIA, S&P 500 and NASDAQ have all broken out to new all-time highs. However, the momentum that pushed them higher appears to be fading. Weekly and cumulative advance/decline metrics are tepid suggesting the move to marginally higher new highs is being done with limited participation. Historically as participation fizzled so has the rally.
Monetary:
0 – 0.25%. Nothing new was said in the Fed’s official statement from the July 27-28 FOMC meeting. There was no change in existing policy while they reiterated that they are willing to tolerate above target inflation in the expectation of achieving that target over the longer-term. Current inflation metrics are still viewed as transitory. The bond market appears to agree and so do we.
Psychological:
Bulls in retreat. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors have slipped to 52.6%. Correction advisors have increased to 30.9% while Bearish advisors have crept up to 16.5%. The recent pullback in bullish sentiment combined with a modest uptick in correction/bearish is encouraging, overall sentiment is still at an elevated level. Current levels appear to support a market that is likely to continue to meander higher with the occasional dip along the way.
AUG
2021