Now is not the time, historically, to get excited about stocks.
The July to October span has proven to be a loser, on average, over the past 30 years, and the current rally is feeling stretched. Then there’s the geopolitical circus. Nobody would blame you for shutting down your trading screens, ordering a fizzy drink with a pink umbrella and planting yourself unapologetically in the nearest hammock.
Some long time market observers are even asking whether we’ve reached “the point of maximum financial risk,” as this chart suggests:
But Liz Ann Sonders, chief strategist at Charles Schwab, says you might miss out on a trend-bucking advance if you take your chips off the table.
“Conditions for stocks appear to be relatively smooth, illustrated by still-low volatility and major indexes near record highs,” Sonders wrote in our call of the day. “We believe stocks will move generally higher, supported by solid earnings, low inflation, and a modestly growing U.S. economy.”
Sonders, despite her bullish outlook on the market, says “we certainly don’t begrudge investors taking a little rest and relaxation.”
Regardless, she noted that tech and energy stocks have taken a hit lately, while financials and health care have rallied. This rotation helps keep investors from getting overly optimistic, which can lead to that dangerous “euphoria” level on the chart above.
“This two-steps-forward-one-step-back movement is what we believe will help to extend the long-running bull market and, for now, help prevent a ‘melt-up’ scenario,” she said. “As good as they feel while they’re in motion, they don’t tend to end well.”
Key market gauges
Futures on the Dow YMU7, -0.01% and the S&P ESU7, +0.11% are higher, but only just. Tech stocks NQU7, +0.33% are looking a bit better, with more of a premarket bounce in store. Asian markets ADOW, +0.32% closed with some gains, while Europe SXXP, +0.29% is showing some green flashes early. Gold GCQ7, -0.25% and oil prices CLQ7, -0.88% are both down.
If that summer bump Sonders wrote about is to take hold, quarterly results will have to cooperate. We’ll get a good sense this week, as second-quarter earnings season kicks into gear. The big test will be on Friday, when investors will crunch numbers from Citigroup C, +0.41% J.P. Morgan JPM, +0.50% and Wells Fargo WFC, +0.32%
Earnings this week. Thursday and Friday look interesting, rest of the week… meh. pic.twitter.com/kJLM7L6Hp1
— Kid Kapital 💰 (@kidkapital) July 9, 2017
More bad news for Tesla TSLA, +1.42% after the car marker’s no good, very bad week that just passed. April sales of the company’s Model S and Model X dropped to zero (!) in Hong Kong after authorities slashed a tax break for electric vehicles on April 1. This shows how Tesla’s performance can be to government incentive programs.
Bitcoin may have pulled back from its highs, but that hasn’t stopped the experts from making some seriously bullish calls, like this one from Tom Lee.
“When it comes to Russia I am dumbfounded, I am disappointed, and at the end of the day he’s hurting his presidency by not embracing the fact that Putin is a bad guy,” Lindsey Graham, explaining to NBC News why Trump’s plan to work with Russia on cybersecurity is “pretty close” to the “dumbest idea I’ve ever heard.”
Amazon’s AMZN, +1.41% relentless assault on everything we thought we knew about retail continues, and if you haven’t heard the death knell already, this chart should do the trick. MKM Partners analyst Rob Sanderson used this visual to illustrate his point: Retail, as we once knew it, is dying. And quickly.
“We estimate that AMZN’s total U.S. gross merchandise value (inclusive of third-party sellers) grew by 28% in Q1, 10x the market rate,” Sanderson wrote. “This suggests that AMZN has about 5% share of categories served… The median growth for the top-20 U.S. retailers was 2.4% in Q4’16, 0.8% in Q1’17, and forecast to decline by 0.2% in Q2’17.”
$26.7 billion — That’s how much investors have pulled out Goldman Sachs Asset Management’s mutual funds so far this year, according to Morningstar data. The figure makes Goldman GS, -0.62% the world’s worst-selling fund manager around the world, the Financial Times reported. GSAM blamed the big outflows on investors pulling out of its money market funds, short-term investment vehicles.
Later in the week, we’ll get June retail sales and the Consumer Price Index, along with some words from Fed Chair Janet Yellen on Wednesday. As for today, the Fed will release its monthly Labor Market Conditions Index at 10:00 a.m. Eastern, followed by consumer credit numbers at 3:00 p.m.
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