Market Perspective for August 25, 2014

Stocks pushed higher last week despite the Federal Reserve sounding slightly more hawkish in its minutes, thanks in part to very strong economic data such as the much stronger than expected manufacturing PMI. The rally has continued into mid-day trading today, as the S&P 500 surpassed 2,000. The Dow Jones Industrial Average and the Nasdaq were also up through the early afternoon.

There won’t be as much economic news out this week, with some housing and consumer spending data making up the bulk of reports. Durable goods orders are projected to rise 6.9 percent in July, a significant increase, but looks justified based on the PMI numbers. Attention will also be paid to the second quarter GDP growth revision. The government puts out three estimates of GDP, each one spaced a month apart. The estimate last month was 4.0 percent and economists have lowered their forecasts slightly to 3.9 percent growth.

This week we’ll also get some updates on the situation in the eurozone and in Japan. Europe will report consumer confidence, business climate, industrial sentiment, along with private loans on Thursday. The same day, Japan will announce inflation and retail sales data, the latter of which will be closely watched given the major impact of the recent sale tax hike.

The Nasdaq and S&P 500 Index both hit new 52-week highs and look to add to their gains this week. The Dow Jones Industrial Average could push to a new high over the coming days. The Russell 2000 has kept pace with the S&P 500 Index for the past month, neither meaningfully underperforming nor outperforming. The Dow Transportation Index is also close to its high for the year after recovering from its late July sell-off. Markets are doing well in August, but a new high in both the Industrials and the Transports would signal a very clear bullish signal.

Trading will be light this week and should get lighter as we head into the Labor Day weekend. Volatility could increase slightly, but most likely the markets will be calm due to traders taking vacations.

Earnings: Some retailers are still reporting, among them Abercrombie & Fitch (ANF), Best Buy (BBY), Tiffany (TIF) and Dollar General (DG). Solar panel makers Trina (ISL) and Yingli (YGE), plus gun maker Smith & Wesson (SWHC) will also release earnings this week.

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