Market In Wait-And-See Mode With Inflation Data Ahead

Whoever thought up the expression “dog days of summer” probably had mornings like this in mind.

Looking around for news, it’s hard to find much. And U.S. markets didn’t move very far overnight. European trading hasn’t provided a lot of direction, either, though stocks did rise pretty nicely across the Pacific in China.

In possibly a bullish signal, volatility is retreating from a mild pop that started the week, with the Cboe Volatility Index (VIX) back under 17 this morning. Data-wise, it’s a bit slow today, and the earnings calendar doesn’t show a lot of big names ahead until later this week. Concerns about the Delta variant may help limit gains, and a couple of Fed speakers scheduled later this week might be eyed for any hints on when the central bank might begin tapering stimulus.

It may be the dog days, but we still have a lot of interesting macro stories on the plate.

h2 Price Check Straight Ahead/h2

Data pick up tomorrow and Thursday with a look at consumer and producer prices for July (see more below). One thing to remember is that the last few months when these reports came out, the market sold off initially.

While there’s no guarantee of a repeat, we probably shouldn’t be surprised if the market reacts negatively, especially if inflation jumps much more than the 0.5% expected by Wall Street analysts. Also keep in mind that none of those previous selloffs turned into anything too crazy.

Monday’s calendar was a bit light on the numbers, but did provide another look at the jobs picture. More than 10 million job openings are out there, a monster amount. And with unemployment down to 5.4% and the economy adding more than 800,000 jobs each of the last two months, there might be some concerns about companies needing to pay more to get workers.

While people getting paid more is a good thing, it also can feed the inflation monster. We saw the benchmark 10-year Treasury yield climb above its 200-day moving average of 1.3% yesterday as it looks like some traders might be building a bit of inflation into their positions.

Any strong inflation growth in the data tomorrow or Thursday could provide more ammunition to those arguing that the Fed might be getting ready to taper its stimulus. The Fed’s August Jackson Hole summit coming up in a few weeks is one venue worth watching for any chance of more detail on that.

Meanwhile, talk of a more hawkish Fed appears to be weighing on gold and lifting the dollar. A stronger dollar may have helped push down crude yesterday.

Speaking of crude, it’s interesting to note that U.S. crude prices never did retest Monday morning’s three-month low down near $65 a barrel. They pushed through technical resistance around $66.40 and held above that. The bounce today may be a sign that virus fears are mitigating, though those fears never really go away.

That $65 level could be one to continue watching to see if support might be building there. If crude stays down near current levels, it could help ease high gas prices here in the middle of summer driving season. Labor Day weekend is usually considered the last big driving holiday before back-to-school time.

From an individual stock standpoint, it’s interesting to see some of the companies that got popular during the pandemic having another surge. A couple that come to mind are Moderna (NASDAQ:MRNA) and AMC Entertainment (NYSE:AMC). The AMC gains came after a solid earnings report, but this is a stock that’s had a lot of peaks and valleys, so think twice before jumping in.

h2 What Retail Investors Are Up To/h2

One more piece of data came out Monday. The Investor Movement Index® (IMXSM) fell to 8.34 in July, down 8% from a record 9.08 in June. The IMX is TD Ameritrade’s proprietary, behavior-based index, aggregating Main Street investor positions and activity to measure what investors actually were doing and how they were positioned in the markets.

There are two major fears at the moment that might be contributing to that slight downturn in IMX from June. First, obviously, is the Delta variant spreading worldwide. Second, the big wild card remains the Fed—its wait-for-the-numbers approach to monetary policy changes is adding uncertainty to the market.

TD Ameritrade clients were net buyers overall during the July IMX period. Some of the popular equity names bought during the period included Ford (NYSE:F), Didi Global (NYSE:DIDI), Alibaba (NYSE:BABA), Carnival (NYSE:CUK) Corporation (NYSE:CCL) and Nvidia (NASDAQ:NVDA).

TD Ameritrade clients took advantage of rising prices to sell some equities during the period, including, Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA), Advanced Micro Devices (NASDAQ:AMD), Pfizer (NYSE:PFE) and Nokia (NYSE:NOK).

Spin The Big Wheel: The most closely watched price report of the month comes out tomorrow as investors get a look at the July consumer price index (CPI). Analysts expect the gains to still be strong, but a bit slower than the 0.9% we saw in June. Consensus for July is 0.5%, according to research firm Briefing.com. One thing that could hold the key is transportation. Overall transportation, vehicles and motor fuel drove most of June’s price gains, but there are signs those categories might be losing steam.

The average price of a used car rose 1.18% in the last 30 days after rising more than 10% in the last 90 days, according to CarGurus.com (NASDAQ:CARG). That could be a sign that maybe this sizzling market is coming back to earth. Gas prices remain near their 2021 peak, but might be wobbling a bit as the price of crude retreats. Some of this won’t necessarily show up in tomorrow’s report, but could get reflected down the road, so to speak. If CPI looks relatively benign, perhaps it could work against some of the Fed tapering fears that appeared to concern Wall Street on Monday.

Slow-Walking Infrastructure: If you’re hoping the infrastructure bill now moving through the Senate can light a new fire under construction and energy stocks, you might need to tamp down your enthusiasm a bit. Yes, there are signs the legislation has a chance to pass the Senate as soon as this week, media reports say. The situation in the House, where it also needs to pass, is a bit dicier. Some Democrats there say the bill doesn’t necessarily light their fire, so to speak, and they may push it back to work on other legislation first.

Democrats hold a slim enough majority in the House that even a few defections could sink legislation, The New York Times said, and progressives have been open about their reluctance to support the infrastructure legislation without an ironclad guarantee that a separate budget package, expected to cost about $3.5 trillion, will become law. They might push to get that bill passed first, which is potentially as big a lift as infrastructure. That’s just one reason it could take weeks or months before we know infrastructure’s ultimate fate. It’s become almost a running joke since 2017 that this is “infrastructure week.” Well, the joke seems to have a good chance to become even longer in the tooth.

Commodity Klatch: All the headlines yesterday were about crude falling to four-month lows. Don’t ignore the other commodities, though. They’re also losing ground. Two key ones that many investors follow for signs of reopening progress—lumber and copper—continue to crumble. Some of this might reflect what traders often call “overbought” situations in which speculators piled in and now could be taking profit after the spring peaks. Don’t count out fundamental issues, either. Copper and lumber can be helpful barometers of demand for products from cell phones to electric cars to housing.

Any prolonged weakness in either commodity, along with crude, could indicate economic stumbles perhaps related to the Delta variant. Lumber, for instance, recently dropped to less than half of its peak levels from three months ago. Copper hasn’t had that big a drop and is only at three-week lows. We’ll keep an eye on both of those and crude in coming days to see if any support comes into the market. It wouldn’t be all that surprising considering how far they’ve fallen, but any rebound is going to probably get an initial fish-eye as a possible “dead cat bounce” unless it can find a way to last more than a day or two.

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Written By: TD Ameritrade