Market Update: 'Continued Strength'

By Renato Capelj of Benzinga.com

Sunday, July 5, 2020 3:27 PM EDT

The Last Week In A Nutshell

The S&P 500 experienced its best quarter since 1998, adding 20%.

"A 20% quarterly gain is quite rare, but the catch is previous large quarterly gains have actually led to continued strength. In fact, a quarter later stocks have been higher the past eight times after gaining at least 15% during the previous quarter,” LPL Financial Senior Market Strategist Ryan Detrick said in a statement.

While the risk of a national COVID-19 resurgence remains, a more likely outcome is that localized outbreaks appear, suggested Brad McMillan, chief investment officer for Commonwealth Financial Network. Even if cases rise across the nation, most of the damage will be confined to a limited number of states, he said.

As a result, without national lockdown measures, an economic recovery is likely to continue into next year, McMillan said.

Pictured: profile chart of the S&P 500 E-mini Futures.

Broad-market equity indices framed higher last week, evidenced by the higher highs and lows on the daily time frame, and closed the week off near a resistive low-volume area.

Recapping Last Week’s Action

On Monday, June 29, the S&P 500 established a higher low, above the year-to-date volume weighted average price, and squeezed on good delta, through resting liquidity at and above $3,020.
After Tuesday, June 30’s challenge higher, the S&P retested $3,100, a high-volume area, and balanced Wednesday, July 1, building value and acceptance of $3,100, as evidenced by the responsive intraday participation.
On Thursday, July 2, the U.S. economy added greater than expected payrolls, driving prices higher at the open, before establishing excess and fading to close the gap below.

Overall, though extended, the market is at an important technical level. Breaking further into the prior low-volume resistance would point to a change in sentiment, quashing the initiative activity that drove prices lower in the first place.

Looking beyond the broad market indices, the innovation-driven, technology-based sectors are extended, while relatively weak sectors, such as energy and financials, suggest bigger selling may be around the corner. For a continuation higher, buyers must step up on dips and increase participation in search of higher prices, helping ensure value follows closely behind.

Key events and reports include Non-Manufacturing Activity, Final Composite And Services PMI, Initial Claims, Wholesale Inventory, PPI, Consumer Credit, and JOLTS.

Fundamental Events

The Federal Reserve destroyed price discovery and delayed the inevitable.
Boeing Co. (BA) placed final part orders for its 747 jumbo jets.
General Motors Company (GM)'s China quarterly sales dropped 5%.
Global GDP to remain below pre-virus levels through most of next year.
The Federal Reserve looks to Australia’s central bank for rate strategy.
Airbus SE (EADSY) close to slashing jobs as output may drop 40%.
Democratic nominee Joe Biden would end most of President Trump’s tax cuts.
Royal Dutch Shell plc. (RDS-A) to cut asset values by up to $22 billion.
Lululemon Athletica Inc. (LULU) to buy Mirror for $500 million.
By year end, corporate earnings may recover from the pandemic slump.
Key innovation principles for delivering net-zero emissions, per the IEA.
Laying out the worst-case scenario: a collapse of the financial system.
Q2 projections are miserable as average S&P 500 earnings may decline up to 45%.
The U.S. added 4.8 million payrolls, while the unemployment rate shrank to 11.1%.
Global refinery utilization rates in 2021-2024 may be 3% lower relative to 2019.
Tesla Inc. (TSLA) beat analyst estimates for Q2 vehicle deliveries.
Brazilian regulators halt Facebook Inc. (FB)'s payments service.
Large U.S. banks pass the Fed's stress test, but must submit new capital plans.
ASEAN response mitigated economic damage, but unlikely to offset credit risks.
Sentiment: 22.2% Bullish, 32% Neutral, and 45.9% Bearish as of June 27.