More Worries, and a Monday Bounce
The S&P 500 fell 1.18% for the week as investors became increasingly concerned that interest rates will soon rise. Year-to-date, the S&P has returned 2.14%, trades at a price/earnings ratio of 18.34, and has a dividend yield of 2.05%. As of Friday’s close, the S&P 500 is 2.5% below its record close set on May 21st. With today’s strong trading action, markets continue to confine their movements within recent trading bands. More on that below.
So what happened last week? In addition to interest rates weighing on markets, oil dropped almost 7%, closing the week at $43.87 per barrel. West Texas Intermediate nearly reached its 52-week low of $43.46 set on March 17th. Also, markets were disappointed by poor earnings reports specifically within the media sector, as Disney, Comcast, and Time Warner shares all fell meaningfully in response to earnings disappointments within the group.
Was there any good news last week? Actually, the government employment report on Friday showed a continuation of quality jobs trends. Even better was a positive revision to add 9,000 jobs to the already solid June report. Between jobs growth and cheaper oil at the pump, the fortunes of the consumer should continue to improve.
As expected, the 200-day moving average for the S&P 500 held up at 2073. However, these lines of support and resistance are becoming nearly meaningless because stocks have been in such a narrow range all year long. This has the lines (of support and resistance) converging. In fact, the 50 and 100-day moving averages are stuck together at 2097. And the 200-day moving average is only 1% below that level, versus the more typical 5 to 10% spread.
The major issue on the minds of investors is what will the catalyst be to propel the markets beyond the recent narrowing trading range? The bulls believe stronger earnings in the back half of this year and into next year will do the trick. Our concern centers on regulatory headwinds to growth currently causing the economy to muddle along in the 1.5 to 2% growth range. History tells us that pro-growth policies enable the U.S. economy to perform much better than that.