Earnings season got underway this week as the summer heat is turning up on Wall Street. Results have been without dire warnings and we are near new highs in the S&P 500. Technically, we are currently working off an overbought condition that could extend into next week.
With new highs we have a critical support level in the chart at 2,944 which will likely be re-tested next week. If it fails, the S&P 500 should find support at 2,909 near the 50day. Much below that and it opens the door for a larger correction down to the 2,700 area.
Will 2,700 happen? The market may be waiting for confirmation from the Fed or it may be waiting for corporate earnings and forward guidance to allay fears of an economic slowdown. A fail on either could bring in a selling wave to test the June low. The capital markets signals are mixed and there are a multitude of cross-currents between central banks and our political leaders. For now, the best compass is the S&P chart and the 2,944 support level.
Chart of the Week!
Nonsupervisory workers got paid $23.38 an hour last month which exceed the longtime peak dating back to February 1973 by 5 cents. Back then, workers had earned $4.05 an hour, which translates to $23.33 in 2019 dollars.
Economic & Central Banking Snippets
- China’s economy grew at 6.2%year on year in Q2, its slowest pace since the early 1990s, as a trade war with the US hit investor sentiment. The softening comes against the backdrop of difficult relations with the US, which soured in May but improved a month later after a meeting between the two countries’ presidents. (FT)
- U.S. manufacturers are shifting production to countries outside of China as trade tensions stretch into a second year. Companies that make Crocs shoes, Yeti beer coolers, Roomba vacuums and GoPro cameras are producing goods in other countries to avoid U.S. tariffs of as much as 25% on some $250 billion of imports from China. The moves by U.S. companies add up to a reordering of global manufacturing supply chains as they prepare for an extended period of uneven trade relations. (WSJ)
- South Africa’s Reserve Bank cut rates by 25 basis points to 6.5%, as it slashed its forecast for growth this year in Africa’s most industrialised nation. Monetary policymakers had approved the cut in “a persistently uncertain environment” for South Africa’s economy, which contracted sharply early this year. (FT)
Macro Snippets
- Citigroup has outperformed analyst expectations with its second-quarter earnings report, which shows a 2% increase in revenue to $18.76 billion. Growth in consumer lending and cost control compensated for softness in corporate banking. (Reuters)
- In the latest sign of financial markets going into uncharted territory, more than a dozen junk bonds, which usually carry high yields, now trade in Europe with a negative yield. (WSJ)
- China‘s efforts to shore up its sagging economic growth are leading to a debt resurgence. The country’s total stock of corporate, household and government borrowing now exceeds 303% of GDP and makes up about 15% of global debt. (Bloomberg)
- Netflix added far fewer subscribers in Q2 which raises concerns about the streaming giant just as rivals Disney and Apple are set to swoop into its market. Netflix, which has 60m US subscribers, also revealed that it had lost customers in its home market for the first time since 2011, following price rises of as much as 18% earlier this year. It said it expects to add up to 800,000 subscribers in the US in the third quarter. (FT)
That is all for now until next week’s Market Update. Thanks for reading and please email me at paulmccarthy@kiscocap.com if you would like a copy of my brochure.
Regards,
Paul J. McCarthy, III
President – Kisco Capital