Equities Market Forecast: Partial Clouds, Mostly Blue Skies; A Summer-Long Groundhog Day?
June 23, 2017   //   by Mischler MarCom   //   Equities Market Commentary  

Peruzzi’s Perch June 23, 2017–We are finishing up a mixed bag week, with a Russell rebalance on Friday that is adding some trading volume and keeping us within striking distance of fresh all-time highs. Dow and S&P 500 index hit record closes on Monday before pulling back on Tuesday and trading mostly sideways the balance of the week.  The equities market forecast would seem to indicate ‘partial clouds, but mostly blue skies.” In turn, the continued lack of equities market volatility in the US and most other major markets is contributing to rising concerns voiced by contrarians,  “we remain in a state of continued complasence.” For those manning equities trading desks (and without the luxury of summer homes to escape to), this summer portends to be a scene from the Bill Murray film, Groundog Day.

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Larry Peruzzi, Managing Director

Economic data was light, with decent May existing home sales numbers on Wednesday, mostly in line PMI on Friday, as well as better May new home sales.  The mid-month spike in the VIX index is also subsiding as we close out the week at the 10 level, down 13% over the last two weeks. So, after some political drama, Fed rate hikes and lower oil prices, the markets continued their pace of a flat yield curve, slowly rising equities and low inflationary pressures. Some investors, such as Fundstrat Global’s Thomas Lee are starting to question the market rally duration as he cut his 2017 and 2018 S&P 500 earnings outlook.

Oil remained weak, with WTI crude down about 7% the last 2 weeks. Oil’s decline in the past would have pressured markets, but weighting adjustments are allowing us to look past it. Currently the Energy sector weighting in the S&P 500 is down to 5.86%, so oil price weakness is somewhat insulated.

Some [latecomers?] have started to question the Trump agenda, as well as current valuations and earnings expectations. But, in spite of this we continue to see new money slowly enter the market.

Retail investors seem to be fearful of missing out on the rally. We will continue to watch the option markets to see if this sentiment changes.  The MSCI created some noise on Wednesday, when it approved a small weighting of Chinese A shares into the emerging market index, but it did not upgrade Argentina from frontier status to emerging status. The unexpected news in Argentina caused the Buenos Aires exchange to lose 4.8% on Wednesday, but by week’s end it had recouped 1.6% of that loss.

As we enter the final week of Q2, we expect to see some modest sector rotation and cash level adjustments. Next week we have a handful of Fed speakers out and about; Yellen, Williams, Harker and Kashkarei on Tuesday and Bullard on Thursday.

Economic highlights for the coming week are:

  • Monday              Durable goods and Dallas Fed
  • Tuesday              S&P Case Shiller home prices and  consumer confidence
  • Wednesday        Trade balance, pending home sales and wholesale inventories
  • Thursday            Q1 GDP and jobless claims
  • Friday                 Personal income and spending,  Michigan sentiment and Chicago Purchasing managers

It is increasingly feeling as though this market is dealing with 2 fears; (i) valuations are stretched beyond the earnings justifications and (ii) the lack of inflationary pressures will keep real rates low for the foreseeable future. Digging a little deeper, it looks like the latter is winning. Fed Funds are pricing in a 0% chance of a rate hike in late July and only a 16% probability of a hike in September. This could be setting us up for a Ground Hogs Day movie type of summer, same thing day after day. Rinse, Repeat, Rinse Repeat.

We do see some market reactions, such as sector rotation with Energy and Retail lagging and techs, financials and health care gaining. We have also seen some increased equity risk tolerance as money flows enter the more politically stable emerging markets.

So, as investors head to the beach they will keep one eye on the sky for approaching storms and one eye on the markets for the same, but the current picture seems to be blue skies for both.

 

Larry Peruzzi

Managing Director International Trading

Mischler Financial Group

Investment Banking | Institutional Brokerage

Ph:   1-617-420-8472 | Cell: 1-617-997-6318

Larry Peruzzi is a 20 yr global trading markets veteran and brings a unique perspective to global equities market commentary via Mischler Financial Group, the securities industry’s oldest minority broker-dealer owned and operated by service-disabled veterans.  Larry’s experience  and best execution perspective stems from his sitting on ‘both sides of the aisle.’  For more than half of Larry’s career, he ran buy-side trading desks for Standish Mellon and thereafter, The Boston Company. In both of those roles, Larry was responsible for implementing and managing international equities trade execution. Larry’s perspectives are frequently cited by the leading financial news publishers, including The Wall Street Journal, Bloomberg LP and Reuters

Mischler End of Week Equities Market Commentary via Peruzzi’s Perch June 23 2017 end-of-week edition is distributed via email to institutional investment managers and Fortune Treasury clients of veteran-owned broker-dealer Mischler Financial Group, the investment industry’s oldest  minority broker-dealer owned and operated by Service-Disabled Veterans.

Peruzzi’s Perch is a weekly synopsis of Everything Equities as seen from the perch of Mischler Financial Group’s International Equities Desk. Cited by Wall Street Letter in each of 2014, 2015 and 2016 for “Best Research / Broker-Dealer”, Peruzzi’s Perch is one of four distinctive content pieces produced by Mischler Financial Group

Equities Market Forecast: Partial Clouds, Mostly Blue Skies; A Summer-Long Groundhog Day?