1. Moving the markets

The bulls were clearly in charge with the major indexes jumping right after the opening bell and remaining solidly above the unchanged line. The Dow shook off some of its recent weakness by scoring a triple digit gain and notching a third straight winning session, which put it back to slightly positive (+0.2%) for the year.

With 2/3 of economic activity coming from consumers to buy things they don’t need with money they don’t have, the Fed was delighted to present data showing that total consumer credit increased 7.6%, the fastest pace of credit growth since November. This came on top of Friday’s stronger than expected jobs report and assisted this euphoric rally, while, at least for the moment, any trade war anxieties were brushed aside.

As a result, two of the more depressed sectors showed signs of life, namely industrials and financials, which led the way to higher prices. This caused bond yields to climb with the 10-year adding 4 basis points to end the day at 2.86%.

As I posted last week, bond yields and the S&P 500 remain out of sync, as this chart shows. They will eventually align, but there is no hard and fast rule as to how soon this will occur. We may very well see more upside momentum before some of this exuberance will dissipate.

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1. Moving the markets

The major indexes whipsawed throughout the session, however, all action happened above the unchanged line with the tech sector having its best session in over a month.

Helping the positive mood were reports indicating an easing of trade tensions with especially Germany’s car sector enjoying a nice rebound after one newspaper published an unsubstantiated report regarding zero tariffs for cars to the US.

The Fed minutes were in focus as policy makers saw “negative risks” from US trade policy and elaborated that more tit-for-tat could have “negative effects on business sentiment and investment spending,” hardly an earth-shattering conclusion.

Then this: The Fed said there was “broad support for continued gradual increases”, despite some fallout from the negative impact of the trade wars. In the end, it was mentioned that the federal funds rate could be at or above its neutral level sometime next year, and projections were for two more rate hikes in 2018, which translates to one more than expected.

Despite this hawkish assessment, the markets faded only a bit and then popped with the major indexes closing near the highs of the session.

On deck for tomorrow is the all-important and potentially market-moving jobs report, which had a negative front runner today, AKA the ADP private sector report, which showed a gain of 177k jobs in June vs. an expected 190k. We’ll have to see if that weakness affects tomorrow’s payroll as well.

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1. Moving the markets

Yesterday’s late recovery rally continued this morning, but suddenly died, as momentum reversed, which sent the major indexes diving into the red. Weakness in tech and financials eclipsed positive moves in the telecom, energy and real estate sectors.

Contributing to the tech sectors downward swing was Micron Technology, which appears to have been a casualty of the US/China trade war after China announced that it was blocking the firm from selling some of its chips in China. It was made clear, however, that this was only on a temporary basis.

The strong US opening was assisted by prior gains in European markets where a last-minute deal on immigration in Germany saved not only Chancellor Merkel’s coalition but also possibly her job.

In the end, volume was low as many traders were absent, and will probably remain so during this Holiday shortened week. Low volume moves can be extreme, but they may not be necessarily a prognosticator of things to come.  That’s why I would not read too much into this week’s activity.

Happy 4^th of July!

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