It’s hard to keep this market down. Investors seem to want to bet on the rebound continuing and a V-shaped recovery. So despite a lot of potential headwinds, we keep pounding through.
Early signs point to more strength Wednesday as stocks continue to recover from last week’s selloff and major indices try for a fourth consecutive day of gains. Since things can’t go up forever, the question becomes, what’s next?
If you had one of those little toy balls from the 1970s that answered questions when you shook it up, the reading now might be, “Reply hazy. Try again.”
What’s not so hazy is a slew of data hitting Wall Street today and tomorrow that could help reveal how the economy is performing during this pandemic. It all starts this morning with a look at the housing market, which has been showing signs of life lately.
May housing starts, however, disappointed with a seasonally-adjusted reading of 974,000. That was up from a revised 934,000 in April but well below Wall Street analysts’ expectations for more than 1.1 million. We’ll have to wait and see if that hurts the homebuilder stocks today. People had been expecting a pretty decent number with mortgage rates where they are and confidence overall looking pretty good. Maybe the June data will reflect that more.
Consider keeping an eye on the weekly crude inventories report that comes out later this morning. It rose last week by nearly 6 million barrels at a time of year when supplies are typically dropping. Another big jump might get people wondering if demand is still slow to emerge.
Also, start getting ready for tomorrow’s weekly initial jobless claims report. These numbers have been heading steadily lower so any change in that trend might be a negative surprise for the market. Wall Street’s consensus is for 1.35 million, down from the previous 1.54 million, research firm Briefing.com said.
There’s more testimony from Fed Chairman Jerome Powell today in front of a House committee, though it seems unlikely he’d say anything too market-moving after being in front of the lectern last week and again yesterday. Other Fed speakers are also scheduled now that the silent period around the meeting is over.
One key takeaway you might not hear much about is that for the second session in a row on Tuesday, small caps led the way. The Russell 2000 Index (RUT) outpaced the rest of the major indices, rising 2.3%. One element of the rally in April and May was outperformance by the RUT, and that’s potentially a positive reflection of the domestic economy because these companies tend to rely less on overseas sales.
The RUT is up 3.3% so far in June, compared with 2.2% for the S&P 500 Index (SPX). It might be a good idea to keep an eye on this relationship, because lately, when the RUT rallies, that’s been a positive for the broader market.
Other than small caps standing out, there isn’t too much to write home about from a sector standpoint so far this week. Almost all the SPX sectors are rising pretty much in sync, without much difference between the so-called “stay at home” firms and the “let’s play outside” companies. The market continues to respond pretty vigorously to any positive headlines about progress against COVID-19, as we saw yesterday.
That goes both ways, obviously. Remember how …
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