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Morning Commentary

Rally Continues on Strong Manufacturing Data

By Charles Payne, CEO & Principal Analyst
7/5/2017 8:53 AM
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Once again, manufacturing data is looking great this time around. The national headline from the Institute for Supply Management (ISM) posted 57.8, which is the highest since August 2014, paced by strength in all key segments:

Wall Street was looking for a bump in the ISM number (55.2 from 54.9) in May; however, going back to the late 1980s, there has been a huge resistance between 58 through 60, so this momentum will face a major hurdle in its next release.

Sectors Reported Growth (15 out of 18):

Monthly Reported Contraction in June (3 sectors out of 18):

This news helped the Dow Jones Industrial Average to an intra-day all-time high that rallied to 21,562 before cooling off into the last hour of trading on Monday. The S&P 500 surged on the half-day session as well, but NASDAQ couldn’t hold onto gains as the rotation theme reemerged in the final hour of trading.

There is another rotation theme of investors pumping billions into Exchange-Traded Funds (ETFs) while pulling billions out of mutual funds. The good news is that this probably means stronger hands and mitigates volatility, but most of the inflow is earmarked for international fixed income, domestic fixed income, and international equities.

Domestic Flow Trends

Equity Mutual Funds

Exchanged Trading Funds

June 21

-$3.5

-$4.4

June 14

-$2.4

+$22.0

June 7

-$7.7

-$3.4

May 31

-$3.2

+$11.7

May 24

-$2.3

-$3.2

 

Source: ICI

Key Parameters

 

S&P 500 Index

+0.23%

Consumer Discretionary (XLY)

-0.10%

Consumer Staples (XLP)

-0.13%

Energy (XLE)

+1.93%

Financials (XLF)

+1.46%

Health Care (XLV)

+0.19%

Industrials (XLI)

+0.62%

Materials (XLB)

+0.84%

Real Estate (XLRE)

+0.93%

Technology (XLK)

-0.71%

Utilities (XLU)

-0.46%

 

For the S&P Tech Index (XLK), the 50-day moving average didn’t hold on Monday; and now, important support points include 54.00 -52.00 and the 200-day moving average of 51.40. Conversely, the S&P Energy sector (XLE) was the best performer and closed at the top of the trading channel with a 50-day moving average.

The market is on the cusp of a breakaway rally, although tech is clearly the anchor for the moment. I think it’s still a part of a great consolidation phase.

Today’s Session

I hope everyone had a great Fourth of July and is ready to celebrate the greatness of America in a different way- making money as part owners of great American Companies.  Equity futures have been mixed, but NASDAQ, which was indicating lower for much of the morning, is starting to take off.  That will be just one test for stocks today.

The other test is to see if the entire market could rally together, which probably happens once all key indices are well into new all-time high territory. 


 

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