1. Moving the markets

Overnight, Chinese econ data came in far below expectations thereby pulling down the futures markets. Even though their retail sales increased by 8.5% in July, it was a far cry from the expected 11.5% forecast. The manufacturing sector figure disappointed as well.

This negative sentiment carried over into the regular session with the Dow sinking some 200 points with the other major indexes showing similar losses. Not helping the mood initially was the Fed with their statement that they will announce “a tapering of its bond purchases in September,” which then would be implemented within a month or so thereafter.

Still, traders opined that “fundamentals” still support the “risk on” meme, and a slow and steady recovery pulled the indexes out of an early hole with only the Nasdaq failing to close in the green. Helping the retail sector climb higher were positive prospects of quarterly earnings reports from the big players like Home Depot and Walmart.

The US Dollar inched higher, while bond yields slipped a tad. Gold was the beneficiary of today’s uncertainty, and the precious metal added 0.62% but stopped short of its $1,800 level.

Bloomberg reported that August is shaping up to be one of the calmest on record. The equity benchmark has fluctuated an average 0.5% each day, a level of tranquility that, except for 2017, has rarely happened. Makes me go “Hmmm.”

My posting schedule for this week looks like this.

1. Moving the markets

Despite worsening inflation numbers, the markets jumped right after the opening bell, with only the Nasdaq losing momentum during the session, while the Dow and S&P 500 remained solidly in the green.

July’s CPI showed that prices surged 5.4% YoY, which was a tad higher than expectations of 5.3%. MoM the CPI increased at a rate of 0.5% in July. Sure, this could have supported a sell-off, but traders looked at it from a different perspective.

Because, when excluding the energy and food prices, the rise was only 0.3% last month, which was below the expected 0.4% increase. That’s how you turn a negative into a positive giving markets a reason to rally. After all, who uses food and energy anyway?

If you can believe it, this inflation reading, according to the mood on Wall Street, supports the Fed’s belief that these inflationary pressures are still “transitory” and a sign that the economy is indeed recovering from the pandemic. Go figure…

The battle between “growth” and “value” continued unabated, as Small Caps (VBK) took an early hit but managed to crawl back to their breakeven point, while “value” (RPV) ran with the bulls all day to score a 1.30% gain.

Bond yields stair stepped lower, with the 10-year bouncing off its 1.3% level to end around 1.34%, while the US Dollar index swan dived back to its unchanged level for the week. Despite that mixed showing, Gold surged higher with GLD adding 1.38% and again pursuing its $1,800 level.

Tomorrow, we will find out if the Producer Price Index (PPI) will have a surprise in store for the markets.

1. Moving the markets

Despite the Dow and S&P 500 climbing into record territory right after the opening, it was only the Dow that maintained its bullish momentum into the close. The S&P 500 floundered and battled with its flatline but managed to close a tad above it, while the Nasdaq stumbled in the red throughout the session.

Supporting the Dow was the Senate’s passage of the $1 trillion infrastructure package, which traders assume to assist those stocks benefiting from economic growth. At least that’s the theory, but as I have pointed out before, the economy needs a boost, as peak growth has decelerated.

Overall, markets were mixed with Small Caps (VBK) taking a hit of -0.78%, while “value,” as represented by RPV, added a solid +1.32%. That performance was outdone by the Commodities Index (DBC) with +1.81%, as inflation persists and creeps through that sector.

Bond yields continued their charge higher with the 10-year reaching almost 1.35%, which is a massive rebound from the lows of 1.12% just a few days ago. Given higher yields, it’s no surprise that the US Dollar ramped higher and has now reached a point that is close to its March highs.

Gold managed to break even and is trying to find some base from which to launch a new attack at its recently lost $1,800 level.

Leave it up to ZeroHedge to come up with another historical trend analysis, this time comparing the current S&P 500 performance with that of 1987:

I for one can’t wait to see if history repeats itself.