An unexpected improvement in U.S. regional manufacturing activity, a rise in business inventories, and an inline 2Q GDP report out of China, was the U.S. equities neede to continue their gains to open the week.
The Standard & Poor’s 500 Index (SPY) settled higher to mark its eight consecutive advance, the longest winning streak since January. The Dow Jones industrial average finished at record closing highs for the third consecutive session. The Nasdaq scored its highest close since September 2000. Volume though was at the lowest level of any full trading day this year.
The release of weak retail sales curbed today’s advance. Retail sales rose 0.4% in June, below the consensus of 0.8%, a sign of consumer fatigue likely due in part to sequester-related furloughs. Retail sales increased at a 3.3% annual rate in Q2, below the 4.2% rate in Q1. This suggests consumer spending would likely be a smaller contributor to GDP growth in Q2 than it was in Q1. Although disappointing, the trends remain positive.
Meanwhile, the Empire Manufacturing Index picked up 1.6 points to 9.5 in July, a five-month high, and above the consensus of 4.3. It suggests manufacturing growth in the region accelerated modestly. The upbeat report came as new orders moved into expansion territory, along with employment.
Elsewhere, business inventories rose 0.1% in May, compared to expectations of a flat reading. Total business sales advanced 1.1%. It has been range-bound during this recovery, as businesses continue to manage inventories well in line with sales. Today’s bull session was also helped by releases from overseas.
China’s 2Q GDP growth decelerated to a 7.5% y/y rate, from 7.7% in 1Q, matching economists’ expectations. This was the slowest pace of growth since September 2012, and was the fifth-straight quarter with sub-8% expansion. The figure soothed some concerns about a slowing Chinese economy, as comments and data leading up to the release fostered fears that the pace of output could slow much more than anticipated. Meanwhile, other releases showed China’s industrial production rose at a smaller rate than expected, while retail sales topped expectations and fixed asset investment roughly matched estimates for June.
The utilities sector ended atop today’s leaderboard with a gain of 1.6%. Financials provided the broader market with an opening boost after Citigroup reported better-than-expected earnings on above-consensus revenue.
Technology shares also outperformed as major components provided the sector with a measure of support. Industrials and materials climbed after China’s second quarter GDP growth met expectations. While most cyclical sectors finished ahead of the broader market, energy sector ended lower by 0.1% and the discretionary sector shed 0.3%. With regards to countercyclical groups, the utilities sector stood out while consumer staples and health care were little changed.
Our Trend Tracking Indexes (TTIs) moved higher as well with the Domestic TTI ending at +3.28%, while the International TTI closed at +6.47%.
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