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“If most traders would learn to sit on their hands fifty percent of the time, they would make a lot more money.” – Bill Lipschutz
It’s not looking like a positive finish to the week for stocks as Thursday’s modest losses for the S&P 500 look set to continue today. Data overnight from China in the form of Industrial Production and Retail Sales were both weaker than expected. In Europe, Q2 GDP dropped 12.1%, which was in line with expectations while Employment declined 2.8% y/y. One bright spot is that futures are currently well off their lows from 5 AM (all times eastern).
In the US today, we also have a ton of data to contend with starting off with Retail Sales (mixed, headline missed but Control Group better than expected) , Non-Farm Productivity, and Unit Labor Costs at 8:30 (both much higher than expected). Then, at 9:15, we’ll get Industrial Production and Capacity Utilization, followed by Business Inventories and Michigan Sentiment at 10 AM. So, depending on how these reports come in, should shape how we finish the week.
Be sure to check out today’s Morning Lineup for a rundown of the latest stock-specific news of note, market performance in the US and Europe, trends related to the COVID-19 outbreak, and much more.
We’ve long been advocates that the days where the importance of transports acting as a leading indicator for the broader market have given way to the semis acting as the new transports of the digital 21st century. Lately, though, it hasn’t mattered which group you track. The chart below shows the relative strength of the DJ Transports and the Philadelphia Semiconductor Index versus the S&P 500 over the last year. For each index, a rising line indicates outperformance versus the S&P 500 while a falling line indicates underperformance. From late 2019 through this past Spring, the two indices moved in opposite directions from each other as semis trended higher, and transports lagged the market. Beginning in May, though, the Transports bottomed out and have started to outperform. With both indices now trending higher versus the market, it seems to be sending a signal that both the physical and digital economies are on the mend.
On a side note, it’s interesting to note that when all hell was breaking loose in the market in March, both the transports and semis saw their relative strength improve heading into the March 23rd low.