Daily Market Commentary

Week-In-Review: Central Banks Save The Day…Again

11 SPX--Central Banks Save The Day…Again

There really is no playbook for the wild action we are seeing on Wall Street. In the past week alone, stocks were crushed after Brexit and then soared after central banks stepped in and saved the day. Buyers showed up on Tuesday after Mario Draghi (European Central Bank President) said global central banks need to do more. That gave the green light to central banks and investors to buy stocks. Then on Thursday, stocks were a little lower after Draghi’s comments, Mr. Carney, the head of the Bank of England, came out and hinted at more stimulus in the months ahead. For now, stocks are being bid higher on all the easy money from global central banks. Eventually, we will enter another bear market but until then, we have to be cognizant that we are in a sideways pattern in a late-stage bull market. The brexit vote reminds us of early 2008 when Bear Stearns failed and is not a Lehman moment. Remember, stocks rallied after Bear stearns failed for a few months before falling in the latter half of 2008. Right now, clear resistance is 2134 for the S&P 500 and clear support is 1810. Until either level breaks, we have to expect this sloppy and choppy action to continue. We are now entering earnings season again- so the fun doesn’t end. Happy 4th!
Monday-Wednesday’s Action:
Stocks fell hard on Monday as the post Brexit selling continued from Friday. We have no idea how these rating agencies are still in business (after missing all of 2008) or why anyone listens to them, but stocks sold off after Standard & Poor’s lowered the United Kingdom’s sovereign credit rating from “AAA” to “AA.” S&P cited last week’s referendum as the catalyst. In the short term, stocks are very extended to the downside.
Stocks rallied on Tuesday as the market bounces from deeply oversold levels. Remember stocks have fallen in each of the past 3 weeks and are now bouncing from oversold post Brexit levels. Before the open, the government said, the U.S. economy grew at a 1.1% rate in the first quarter of 2016, beating the last estimate of 0.8%. Even though GDP inched higher it was still the third consecutive quarter of slowing output: Q1 2016: +1.1%, Q4 2015: +1.4%, Q3 2015: +2%, Q2 2015: +3.9%. Stocks rallied across the globe as fear eased regarding #Brexit. Just before the close, two suicide bombers blew themselves up at an airport in Turkey.
The market rallied on Wednesday as it continued to bounce from oversold levels. The British Pound, which plunged to a 31-year low after Brexit, also bounced from very deeply oversold levels. Economic data was barely moved the needle. Mortgage applications fell -2.6% even though mortgage rates are at historic lows. Personal income and outlays came in at 0.2%, missing estimates for 0.3%. Pending home sales fell -3.7%, missing estimates for -1.0% and was the first annual drop in two years. Pending home sales are actual signed contracts. Curde oil edged higher after the EIA said Crude Oil Inventories for Jun 24 fell -4.05M Barrels vs -2.4M Barrel estimate.
Thursday & Friday’s Action:
On Thursday, stocks continued to rally as they attempt to repair their post-brexit sell off. The wild swings we have seen over the past five trading days are unprecedented and just illustrates how all the interference from global central banks continues to distort markets. Tuesday morning, Mr. Draghi (European Central Bank President) said Central Banks need to do more which basically gave a green light to central banks and investors to buy stocks. Then, earlier today Mr. Carney, (Bank of England President) came out and said U.K. will need more stimulus post Brexit. That effectively juiced stocks helping the indices have a strong end to the month and quarter. In other news, the S&P rating agency cut the rating on E.U. to ‘AA’ after Brexit. Stocks were relatively quiet on Friday as the market paused to digest the large swings we have seen over the past few days.
Market Outlook: Stocks Hit Hard
The market remains range-bound as it is once again flirting with stubborn resistance (recent highs). Economic and earnings data remain less than stellar which could mean more easy money from global central banks. As always, keep your losses small and never argue with the tape. 

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