• Matthew Lawson

Resiliency in the Markets

The last couple of weeks the markets have shown a level of resiliency that has been missing this year. The Dow went up for a fifth day Tuesday as earnings results from bellwether retail names WMT and HD showed consumer spending has remained strong even as the economy has cooled.

The S&P 500 eked 0.19% higher to 4,305.20, the Nasdaq slipped 0.19% to 13,102.55, and the DJIA rallied 239.57 points, or 0.71% to close at 34,152.01. Small caps moved like the big cap indexes with the Russell 2000 advancing 0.3% before cooling off 0.04% on the close. Volume was higher on the Nasdaq and on the NYSE vs. the same time yesterday, but we need moves directionally to accompany higher volume for volume indicators to provide corroboration of a move up or down. What we did get was a DJIA index that opened in negative territory before rallying as much as 369 points at session highs thanks to results from WMT and HD. Shares of both retailers popped and took retail names including TGT, BBY, and BBBY with them. We still have a lot of retail stocks to report and if at the end of the week we are still up nicely in these retailers, which is going to strengthen the bullish case for this market. Six of eleven sectors were in the green on Tuesday, with retail-dominated consumer staples and discretionary not surprisingly leading the way. Tuesday was also an important day technically for the indexes, which all traded around the key resistance level of their 200-day moving averages. This level will either provide an area of support or resistance depending on where the index is trading relative to the position of the line. The DJIA regained support at this level for the first time today since April of this year. This is significant and follows AAPL that is well above its 200-day moving average. Meanwhile, the S&P 500 and Nasdaq remain just below or right in this area. Should the indexes be able to retake their 200-day lines by closing conclusively above them, it would be another bullish indicator for the current market uptrend.


Stocks are not the only thing on fire, look at the junk bond market. U.S. corporate bonds with speculative, or “junk,” credit ratings have staged a breathtaking rally in recent weeks, noticing the momentum seen lately in major stock indexes as traders bet on a “softish” landing for the economy. Junk bond spreads last week posted their quickest retreat on record, only 1.2 months, narrowing from six hundred basis points to 425 basis points above the risk-free Treasury rate. Spreads are a gauge of credit risk, which are a gauge of risk appetite. Right now, the JNK ETF is rallying hard, and saying, “risk-on.” We will continue to watch junk bond spreads for clues about the stock market’s future direction.


Best,

Matt


The views expressed are not necessarily the opinion of Cadaret Grant, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.


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