EmailWhen the market declines for seven consecutive sessions and loses 6.8% in the process, it is reasonable to think it is due for a bounce. That thinking has pushed the S&P futures higher this morning, but frankly, there isn't a lot of bounce in the S&P's step.
The S&P futures are trading four points above fair value, suggesting the cash market will start the day only slightly higher. A better-than-expected ADP Employment Change report for July has provided a small measure of support.
The enthusiasm for ADP's indication that 114,000 private sector jobs were created in July has been tempered by two factors, however: (1) an awareness that last month's stronger-than-expected report generated false hope and (2) the realization that, even if this ADP number is an accurate harbinger for Friday's nonfarm payrolls report, 114,000 jobs isn't enough really to move the unemployment rate.
The futures indication, therefore, appears to have more technical ballast in it at this juncture than anything else. To be sure, with oil prices down 0.3% to $93.51, gold prices up 1.4% to $1668.00/ troy ounce, and the Treasury market holding its ground after yesterday's huge move, it is evident that economic concerns continue to factor heavily in market action.
The latter was painfully evident yesterday, as the market slumped in a big way before, during, and after the passage of the debt ceiling deal.
It was telling that the major averages saw selling pressure pick up after the president signed the measure into law. That was not a fat-finger trade either. If anything, it resembled more of a middle-finger trade from market participants incensed by the unnecessary drama our political leaders staged with the debt ceiling standoff and the economic harm it created for the global economy.
That pocket of economic uncertainty was simply exacerbated by renewed concerns about Europe's fiscal problems, which have manifested themselves in rising bond yields, and widening credit spreads, in Italy and Spain.
Notwithstanding the framework agreement reached by EU officials on how to arrest the debt crisis in Europe, it would appear that market participants are not convinced they have a silver bullet.
Accordingly, the equity market is apt to maintain a nervous pulse as it contemplates the situation in Europe and the general economic state of things that has weakened after the debt standoff in the U.S.
That doesn't mean we can't see a bounce from a short-term oversold condition, but it does suggest there will likely be a defensive mindset of selling into strength.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is the Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial please email researchsales@briefing.com.
