Dow’s Historic Streak Ends
Weekly Review + Charts
The Federal Reserve hiked rates to the highest in 22 years on Wednesday, to the range of 5.25-5.50%. Despite that, stocks continued to advance and the Dow Jones logged its thirteenth straight green day in a row. Over that span it grew a whopping 5.75%.
This streak of gains was the Dow’s best run going all the way back to 1987. Had it finished positive on Thursday, the index would have tied its longest winning streak ever, going back to 1897 ( one year after the Dow Jones index was established). In those days it was comprised of a mere 12 stocks. Today there are 30.
As MarketWatch reports, market runs like this have not typically signalled a top, although the data is limited. However, on average the Dow has continued higher over the following months. Here’s a neat table to summarize it.
Good news for the economy is that Q2 GDP came in higher than expected, at 2.4% vs 2.0% prior and 1.8% expected. On top of that at yesterday’s FOMC press conference, chairman Jerome Powell stated the committee no longer anticipates a recession.
Does it feel like everything’s turned too bullish too quickly? Bears could make that argument. However, we’ve been bullish for a long time now and just riding this trend up. A pullback here is no cause for concern yet, but we’ll keep our eyes open.
Economic Calendar
Highlights
- ISM Manufacturing PMI – Tuesday
- JOLTS Job Openings – Tuesday
- ADP Employment Change – Wednesday
- ISM Services PMI – Thursday
- Nonfarm Payrolls – Friday
Data Preview & Commentary
ISM Manufacturing PMI – Tuesday
US manufacturing has been on the decline all year, and is at the fastest rate of contraction since May 2020. Companies are lowering output with optimism about the second half of 2023 weakening. This could lead to more employment reduction soon. Consensus is for a slight uptick to 46.5, which would fail to reverse the downtrend. A very low reading could put pressure on the dollar, which is typically good for risk assets.
JOLTS Job Openings – Tuesday
Job openings have been on the decline since early 2022, although the trend is not linear. This is one of those data prints where you look for a substantial beat or miss to move the market. If it comes in near the prior month and close to consensus, its effects should be limited.
ADP Employment Change – Wednesday
The 497K jobs added by the private sector in June is expected to be a flash in the pan, with numbers retreating considerably for the July period. An unexpectedly high number could boost the dollar and put pressure on risk assets, especially since the bar is low.
ISM Services PMI – Thursday
The services sector has remained fairly strong despite all the Fed tightening. It’s been drifting slowly to the downside, and this is something I believe the FOMC committee is monitoring closely. As long as it trends below 55, that’s good news on the rate hike front. A sudden resurgence before the September meeting could increase odds of another 25bps hike. A low number is therefore best for risk assets.
Nonfarm Payrolls – Friday
The US needs 70K-100K new jobs per month to keep up with growth in the working-age population. Recent numbers have been on the decline, but still well above that point. Consensus is 184k, which would be a slight downtick from June. If the number comes in above June’s 209k, I would expect some pressure in risk assets. Below 180k would be favourable. Average hourly earnings are also important and bulls want to see 4.2% or less on the YoY basis.
Charts
Bitcoin 4H Chart
We’d been watching this 29.5-31.5k range for over a month, and it finally broke down. That makes BTC pretty straightforward from here. We either need a 29.5k reclaim or we can expect a bigger retrace toward 28k and/or 26.8k. Nothing exciting or notable otherwise.
S&P500 Weekly Chart
The weekly close is important here. So far we’ve seen a rejection off the 4589 area we previously identified. If this candle closes as a doji or shooting star, we should be on the alert for potential weekly consolidation incoming. A Friday close below 4527 would confirm that with a trend shift on the daily timeframe. I’d be a lot more selective with my trades and exposure in that case.
DXY Daily Chart
The US Dollar Index is presenting a problem here, as it’s reclaimed broken resistance as support. Hold above 101.28 and I am targeting the teal lines at 102.92 and 104.69. I’m also looking at a possible rejection off this 101.92 level, especially if the PCE numbers come out on the low side Friday AM. A lot depends on this inflation print.
Jay Charles
Editor in Chief, The Trading Tank.
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