It was another week of records for the stock market ,and while one would label the feat great, that would be wildly off the mark.   Market breadth continued to flash yellow, if not red flags, especially for names that trade on the NASDAQ, which saw significantly more decliners than advancers and more lows that highs as down volume edged out up volume.

Market Breadth	NYSE	NASDAQ
Advancers	1,678	1,932
Decliners	1.814	2,763
New Highs	376	359
New Lows	128	361
Up Volume	8.9 billion	9,8 billion
Down Volume	8.1 billion	9.9 billion

During the week Financials overtook Energy as best performing sector for 2021, as crude oil continues to struggle with the rise of the Delta variant and associated global reactions, particularly in China.

Portfolio Approach

There are no weighting changes this morning in our Hotline Model Portfolio.

Today’s Session

An article in the Wall Street Journal suggests the Federal Reserve will beginning tapering early in 2022, which is sooner than general consensus.  What’s interesting, even ironic, is the news today is of faster economic slowing in China and the economic hit of the Delta Variant.

Chinese data suggest a sharper-than-expected economic slowdown in July.

·         Retail sales declined to 8.5% from 12.5% a year earlier and below consensus 11.5%

·         Industrial production slowed to 6.4% from 8.3% a year earlier and below consensus of 7.8%

·         Fixed-asset investment slowed to 10.3% from 12.6% a year earlier and below consensus 11.3%

·         Property investment slowed to 12.7% from 15.0% a year earlier

There is no doubt a lot of the slowing in China can be traced to Delta and swift reactions, but that does not explain online sales growth of just 4.4% against the 21.0% five-year average.

In addition, the unemployment rate for ages 16-24 climbed to a year high of 16.2% from 15.4% as 9.1 million students have just graduated university.

News out of China is pressuring markets around the world and even with the media leaping on the WSJ story of sooner tapering, the ten-year bond yield is moving lower – and could soon test former key resistance point.

Earnings Implications

The earnings scoreboard has been amazing, and its time to look to third quarter results, which sees estimates for revenue and earnings surging; although, it is not back to earlier assumptions (October for earnings and January for revenue).

Watching Transportation

The Dow Jones Transportation Index reversed the downtrend that began on the eve of summer.  It’s encouraging and worth monitoring. 

This morning the Empire State Fed survey was a giant miss – we’ll have more details in the note.

 

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