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“The more you sweat in peace, the less you bleed in war.” – Norman Schwarzkopf

Morning stock market summary

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

Welcome to August. Global stock markets have been slapped in the face by a brutal August sell-off driven by weak earnings reports, concerns over the economy, and a generally overbought technical condition.  If that wasn’t bad enough, the July employment report was entirely weaker than expected. Non-farm payrolls increased by just 114K vs a 175K forecast. The Unemployment Rate came in 0.2 higher than expected (4.3% vs 4.1%). As if that wasn’t bad enough, both average hourly earnings and the average workweek were weaker than expected.  After being down by 1.2% heading into the print, S&P 500 futures are now indicated to open down by over 1.5% while the Nasdaq is down 2.3%.  Going the other way are treasury yields where the 10-year yield is below 3.8% and near the lowest level since last July!

As mentioned above, August has started on a poor note, and based on where futures were trading at 8 AM, the S&P 500 was on pace for a decline of 2.5% in the first two trading days of August.  Since 1954, only three other years – 1998, 2002, and 2011 – have started weaker.  Interestingly, though, in the late 1960s/early 1970s, there was consistent weakness to kick off the month.

In terms of how weak starts to August play out for the rest of the month, buckle up. In 1998, the S&P 500 went on to crater another 10.7% while in 2002, it surged 6.0%. Both of these moves make the 2.8% decline for the rest of August in 2011 seem sleepy.

And for the rest of the year? In 2011, that 10%+ decline fully reversed and turned into a gain of 14.7%, but in 2002 and 2011, the S&P 500 was also up but by less than 2% each time.