Daily Market Commentary

Week-In-Review: Stocks Fell Last Week Ahead Of Brexit Vote

11 SPXStocks Fell Last Week Ahead of The Brexit Vote

It was another tough week for the bulls as the major indices fell 5 of the past 6 sessions and are in ‘pullback’ mode. On June 9th, the market looked strong as the S&P 500 jumped above two important areas of resistance (2111 and 2116) but the ‘breakout’ immediately failed on June 10th and stocks have been under pressure since. We also want to note that Central Banks are slowly losing control over stocks. Last week stocks fell even though every major central bank in the world reiterated their dovish stance (and the U.S. Fed pivoted and became even more dovish). Going forward, this could become a problem for the market because the primary driver of this entire 7.5 year bull market has been easy money from global central banks. Our longstanding readers know, we think this will end (very) badly but until it does, we have to remain in sync with what is actually happening on Wall Street, not what we think may happen at some point in the future. On the downside, we are watching support near 2,050 in the S&P 500 and then May’s low near 2026. The “big” level of support remains 1810. On the upside, the “big” level of resistance to watch remains last year’s record high of 2,134. By definition, until either level is breached, we have to expect this sloppy action to continue. The brexit vote is scheduled for June 23, and then we have a few elections in Europe, then we enter earnings season (and you thought it would be a quiet summer).
Monday-Wednesday’s Action:
Stocks fell on Monday, adding to Friday’s losses as the market continues pulling back after encountering (and failing) near stubborn resistance last week. The S&P 500 continues pulling back into its 50 day moving average. In tech news, Microsoft (MSFT) fell over 2% after the tech-giant said it would buy online networking giant LinkedIn (LNKD) for $26.2 billion in its biggest-ever deal. LinkedIn shares surged +46.6%. In other news, shares of Apple Inc. (AAPL) fell after the company held its latest developers conference and failed to impress..
Stocks fell on Tuesday as the Fed began their two-day meeting and government bond yields continued to fall across the globe. Before Tuesday’s open, the German 10-year bund yield slid into negative territory for the first time in history. Would you lend money to Germany for 10 years and pay them? The world of negative interest rates is worrisome and the outcome can not be healthy. The US dollar rallied after retail sales rose a more-than-expected +0.5% in May, beating estimates for 0.3%. Elsewhere, import and export prices rose +1.4%, beating estimates for 0.8% which signals inflation may be rising. Stocks opened higher on Wednesday but turned lower after the Fed meeting and press conference. The Fed held rates steady and turned more “dovish” as they reduced the likelihood of more rate hikes in the future. Economic data was mixed. The producer price index (PPI) rose by 0.4% in May, beating estimates for 0.3%. Industrial production fell to -0.4%, missing estimates for -0.1%. The June Empire State Manufacturing Survey rose to 6.0, beating estimates for -3.5%.
Thursday & Friday’s Action:
On Thursday, stocks enjoyed a big positive reversal (opened lower and closed higher) after several major global central banks concluded their latest meetings. The Bank of Japan (BOJ), Bank of England (BOE) and The Swiss National Bank (SNB) did not announce any changes to monetary policy and that spooked investors and sparked a rally into so-called “safe-heaven” asset classes. Japan’s Nikkei plunged 485 points and the Yen soared after the BOJ ended its meeting. Initially, gold soared before reversing by the end of the day after becoming very extended. The USD was higher but gave back the gains in the afternoon. Stocks fell on Friday as investors could not add to Thursday’s big positive reversal. The market was dragged lower all day by Apple (AAPL) after China banned sales of the iPhone 6 and 6 Plus due because the phone looked similar to an existing Chinese phone. Intellectual property regulators in Beijing said Apple can’t sell the phones because it looked similar to an existing Chinese phone (so much for free markets).
Market Outlook: Stocks Fail At Key Resistance
The market remains range-bound and leadership remains lackluster at best. Economic and earnings data remains less than stellar but all that matters now- is the easy money from global central banks. As always, keep your losses small and never argue with the tape.