Markets in Green, Ignoring Growth Concerns

Market futures are bouncing back, for the most part, following yesterday’s surprise sell-off, which saw the Dow tumble more than 500 points at its low on virtually no actionable market news. Here in the last trading day of the week — which for the past 2-3 weeks have mostly experienced healthy gains — we’re checking to see if the S&P 500, currently -0.7% for the week, will post its first lower full-week of trading in recent memory.

The 10-year Treasury note yield, which seemed to be the catalyst for downward pressure in yesterday’s markets, has buoyed back up over 1.34% this morning, after a brief stint in the 1.25%s Thursday. This is still low going back to early spring of this year, when we saw the 10-year zoom up past 1.7% and causing investors to fret over out-of-control inflation. Yesterday’s moves seemed to express fears of deflation, all of a sudden.

Y’know, there’s a reason “Goldilocks” was a short story and not an epic novel: conditions in that girl’s situation were not intended to be long-lasting. And so we see this play out in our recent Goldilocks scenario in the market: reliably strong growth, but not too hot, were our narrative for most of the past few months. And while employment figures are mostly doing what analysts had been expecting — adding jobs at higher wages — there were a couple economic prints which recently pointed a different direction.

The first was the recent Construction Spending headline for May, which came in a surprisingly low -0.3% from expectations of +0.5%. This suggested demand was far below where analysts had forecasted, and perhaps cast doubt among goods-producing models. But considering these numbers are from two months ago — when inflation was indeed rampant, especially in things like input costs for homebuilders, etc. — it’s worth pointing out the price of wood, copper and other commodities has since cooled.

The second report was the more recent Institute for Supply Management (ISM) report on Services for June. This headline took a surprising downward turn to 60.1% from 63.3% expected, which was already lower than 64.0% reported for May. Yet that 64% figure hit an all-time record high, as restaurants, bars and hotels were on a hiring frenzy ahead of the summer vacation months. And anything over 50% indicates growth; 60.1% may have been anecdotally light, but does not indicate any sort of breakdown.

Of course, it’s an oversimplification to pluck two economic reads out of the air and apply them to current circumstances; for instance, China’s aggressive crackdown on cryptocurrencies may have had even more to do with fundamental global market outlooks than either metric I cited. But even there, Alibaba BABA has rebounded 1.6% this morning, and Tencent TCEHY has gained 3% before the opening bell.

Thus, while there are no guarantees future corrective measures won’t be taken on a particular trading day, all evidence points to yesterday’s <1% adjustment being a mere blip on the screen. Currently, the Dow is +250 points, the S&P is +20 and the Nasdaq is -5.

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