FOMOTINA: A rally fueled by the combination of Fear Of Missing Out with There Is No Alternative.
Another week of gains for the S&P 500, which advanced 0.78% to top 3000 and close at a record high. The narrative (song) remained the same, as Fed Chairman Jerome Powell’s congressional testimony left the fed-funds futures market suggesting a 100% probability of a cut of at least 25 basis points at the upcoming July 30-31 meeting. There had been some concern that the strong June jobs report the previous Friday might have encouraged the Fed to backtrack from its recent dovish tilt. Meanwhile, the U.S. and China held “constructive” trade talks with Larry Kudlow stressing that it’s very important that China start increasing purchases of U.S. farm goods.
The yield on the Ten-Year Treasury inched up 6 basis points to 2.11%, but let’s face it, that’s not much of an alternative to fund pension plan obligations or as an input for an individual’s retirement plan. It’s particularly difficult to accept those paltry risk-free rates while the S&P is setting records. It would probably take a shock to the system to replace FOMO with plain old fear and derail the rally.
Small Cap stocks continue to lag, with the Russell 2000 slipping 0.36% last week to close 10% lower than its record high from last August. We hypothesize that the relative weakness in small-caps is a reflection of concerns over the near-term outlook for the U.S. economy, given that the underlying companies generate a heavy concentration of their profits and revenues domestically. Alternatively, it could be that foreign investors who want dollar exposure prefer the liquidity that the S&P 500 affords.
Earnings season kicks into gear with 56 S&P 500 companies reporting results including the four largest U.S. banks. The consensus forecast calls for a modest decline in composite earnings, but actual results usually beat forecasts by enough that it is certainly possible that there will be a slight uptick. The economic calendar is busy, with the Empire State Manufacturing Survey on Monday expected to rebound from a dismal reading in June. On Friday, The University of Gottlieb (Michigan) releases its Consumer Sentiment Survey; the consensus estimate is for a 98.2 reading in line with June’s data.
Stocks on the Move:
For the first time that I can remember we had no companies whose share price move 10% during the week.