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“It is dangerous to make everybody go forward by the same road.” -Ignatius of Loyola

Morning stock market summary

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We’re now well past the halfway point of a year that most investors would prefer never to end.  That’s a big shift in the way sentiment was to start out the year, but while things are far from perfect, the backdrop looks a lot less ominous now than it did at the start of the year.  That’s both a good thing and a bad thing.  It’s good because no one wants runaway inflation or a recession.  The bad news is that it’s becoming a much more widely accepted view, and when everyone starts to travel the same road, traffic jams are ultimately the least of your problems.

Futures are modestly higher to kick off what will be another busy week for earnings and economic data. In terms of earnings, the two biggest reports will be (AMZN) and Apple (AAPL), which will both be reporting after the close on Thursday. On the economic side of things, the key reports to watch will be ISM Manufacturing (Tues) and Non-Manufacturing (Thu), as well as Non-Farm Payrolls on Friday.  Besides those reports, JOLTS and Jobless Claims will obviously be key indicators to watch.

Along with the positive tone in US futures this morning, Asian stocks were broadly higher with gains of more than 0.5% while European stocks are also higher led by France and Italy.

The S&P 500 rallied over 1% last week, but four sectors posted losses led lower by interest rate-sensitive sectors like Utilities and Real Estate which were both down close to 2%.  At the other end of the spectrum, more cyclically sensitive sectors like Communication Services, Energy, Materials, and Consumer Discretionary led the way higher.  While Real Estate and Consumer Discretionary are no longer trading at overbought levels, they are still well above their 50-day moving averages, and the broader market remains overbought as has been the case since the Friday before Memorial Day.

Regarding seasonality and the last trading day of July and the first trading day of August, there have been some interesting (and not so bullish) trends regarding performance during years when the S&P 500 was up 10%+ YTD versus all other years. Regarding the last trading day of July, there hasn’t been much in the way of differences in performance.  In the 24 prior years since 1953 when the S&P 500 was up 10%+ YTD, its median performance on the last trading day of July was a gain of 0.06% with positive returns just over half of the time.  As shown, both in terms of median performance (top chart) and consistency of positive returns (lower chart), these numbers are just slightly less than the figures for all other years.

Where things get interesting (and less positive for bulls) is on the first trading day of August.  In years where the S&P 500 was not up over 10% YTD, the S&P 500’s median performance was a gain of 0.07% with positive returns 54% of the time.  It’s in the years where the S&P 500 was up over 10% YTD, though, that the first day of August has been prone to profit-taking.  In those years, the S&P 500’s median first day of August performance was a decline of 0.31% with gains less than 30% of the time.

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