This week comes with a broad array of economic data that'll give us a better sense of where the U.S. and world economies stand today.
From Brown Brothers' Marc Chandler: "We continue to identify four main macro issues shaping the investment climate: The tapering anticipation in the US; the stabilization of the Chinese economy; a cyclical recovery in Europe; and the long awaited Japanese purchases of foreign bonds"
Top Stories
The World Versus 1,700: "At the start of the year, Wall Street's so-called "1700 Club," didn't have a single member," said Adam Shell in a popular USA Today feature last Thursday. "Today, seven top stock strategists have joined the club, whose membership requirements include being bullish on stocks and owning a 2013 year-end price target of 1700-plus for the benchmark index."
"With many traders at the beach, Wall Street's remaining bulls and bears will be skirmishing around the 1700 level on the S&P 500," said CNBC's Patti Domm on Friday.
Unfavorable technical indicators aren't helping to alleviate tensions at 1,700. "For the 4th day this week new highs, new lows, advancers and decliners flashed an angst-prone market and triggered a Hindenburg Omen," noted Zero Hedge on Friday.
More On The Rise Of The West: "I wouldn’t want to get overly carried away or be dismissive of the remaining cyclical and structural challenges out there, but recent data have definitely taken a turn for the better in the UK and euro area and, of course, it has been that way in Japan and the US for a while now," acknowledged economist Jim O'Neill in a piece for The Telegraph.
O'Neill warns not to get too carried away with optimism. "In the US, underlying fiscal challenges remain. The challenge posed by a lessening of the Federal Reserve’s quantitative easing through an early tapering – never mind the day when the Fed starts raising interest rates – will be significant."
Economic Calendar
Treasury Budget (Monday): Economists estimate a budget deficit of $96.0 billion in July, versus a $116.5 billion surplus in June. "Growth in outlays mostly reflects a calendar shift that moved some substantial early July payments for Medicare and other programs into June last year," said Morgan Stanley's Ted Wieseman. "On an underlying basis, spending remained well contained, with defense likely to be down significantly as sequester cuts continued. On the revenue side, withheld income and payroll taxes gained an estimated 15%, boosted substantially by higher payroll and income tax rates this year but also showing underlying improvement."
Retail Sales (Tuesday): Economists estimate retail sales climbed 0.3% in July and 0.4% excluding autos and gas. "The best retail sales report in five months should be due to a pick-up in core sales, as autos should be down a little and gasoline should be up a little," said Credit Suisse's Neal Soss. "Behind our core expectation are good chain store results, a surge in the ISM Non-Manufacturing index and hotter/drier weather. Watch for a big rebound in food (grocery stores and restaurants – more so the latter) after weakness last month."
Producer Price Index (Wednesday): Economists estimate PPI climbed 0.3% and 0.2% excluding food and energy prices.
Consumer Price Index (Thursday): Economists estimate CPI and core-CPI both climbed 0.2%.
Jobless Claims (Thursday): Economists estimate that claims will slip to 330,000 from 333,000 last week. "The lack of an uptrend in claims implies that the modest weakening in payrolls in July was due to normal volatility," said High Frequency Economics' Jim O'Sullivan. "If anything, claims are signaling acceleration in employment growth, not deceleration."
Industrial Production (Thursday): Economists estimate industrial production climbed by 0.3% in July. "Our expectation is that industrial production rose 0.2 percent in July, reflecting the stronger gains in the ISM manufacturing and Chicago PMI data for the month," said Wells Fargo's John Silvia. "In the months ahead, industrial production should continue to slowly edge higher through the end of the year as demand from both consumers and businesses help to boost output growth."
Philadelphia Fed Survey (Thursday): Economists estimate the index to fall to 15.0 in August. "We expect some moderation of manufacturing activity in the Philly Fed district in August," said Bank of America Merrill Lynch's economics team. "In July’s report, the Philly Fed index hit 19.8 – the highest level since March 2011. We expect the pace of activity to slow, but still remain brisk, with the index falling to 13.0."
Housing Market Index (Thursday): Economists estimate the homebuilder sentiment index fell to 56 in August from 57 in July. "After a nearly unprecedented surge in builders’ sentiment over the last two months, which occurred in spite of a 100 basis point-plus rise in interest rates, the NAHB index is bound to retrace some of its recent improvement," said Deutsche Bank's Joe LaVorgna.
Housing Starts (Friday): Economists estimate the pace of housing starts climbed to 900,000 in July. "We expect starts to rebound 7% in July, reversing most of the surprising 10% plunge posted in June, driven by a rebound in apartment construction and a renewed move higher in single-family homebuilding," said Morgan Stanley's Wieseman. "A 26% drop in the volatile multi-family category accounted for most of the June weakness, but multi-family starts have been running well below permits the past few months and are due for a rebound."
Consumer Sentiment (Friday): Economists believe the University of Michigan's measure of consumer confidence climbed to 85.5 in August. "August consumer sentiment should reach a fresh six-year high," said Credit Suisse's Soss. "Recent news flow, especially on the jobs picture, should be a tailwind. The unemployment rate hit a new low for the recovery. Household wealth continues to be underpinned by higher stock prices and higher home values. Lower gasoline prices should support lower income households’ confidence. And stabilization in the backup in interest rates should calm fears for upper income households, after this development was a headwind to this cohort last month."
Market Commentary
The S&P 500 is struggling to pass 1,700 and stay above it.
For now, most of Wall Street seems pretty convinced the S&P will go above and beyond.
JP Morgan's Tom Lee, who sees the S&P 500 heading to 1,775, shared an interesting anecdote in a note to clients on Friday."[A]t a large group lunch earlier this week with 80 or so wealth advisors, we heard how most individual investors are spectators in the equity markets, having a greater share of their assets in bonds, particularly munis – apparently, stocks are for “other people” (who want to take the risk)," he said.
"In our view, sentiment tends to have contrarian implications – that is, if investors are generally (anecdotally) cautious, this suggests that a lot of the negatives are already reflected in current prices. Consequently, as much as investors are concerned about a potential pullback (which we acknowledge is possible), the current caution suggests better implied risk/reward."
Matthew Cheslock, a trader with Virtu Financial, gave us a brief rundown of what to watch for. Watch here:
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