Market Perspective for June 9, 2014

U.S. markets will try to add to the strong gains made last week. Over the weekend, Chinese trade data was mixed, with exports up and imports down. China isn’t as reliant on exports anymore, and the big concern in the domestic real estate sector. That was the biggest economic data coming into Monday, and markets in Asia and Europe were relatively flat in Monday trading, but this will fade when the U.S. markets open and set the tone for the start of the week.

Economically sensitive sectors did well over the past week. Transportation and energy broke out to new highs, while automakers are challenging their high for the year. According to railfax.com data, railcar loadings have reached levels last witnessed in November 2013. This is good news as loadings tend to peak each year in late autumn and then pick up again in late winter or early spring.

Last week also saw a spike in the trade deficit. A higher trade deficit will lower the GDP estimate for the second quarter, but since the U.S. has a persistent deficit, it most likely means GDP will be higher overall. In other words, even though a smaller trade deficit is better for GDP growth, as long as the U.S. economy is structured such that it has a consistent trade deficit, larger deficits will accompany stronger growth.

The Nasdaq is the major index to watch this week. A gain of 1.5 percent will propel the index to a new high for the year and if that happens, it should be another solid week for the broader markets.

Economic Reports: This is a very light week for data, but everything reported comes from the second quarter. Inventory data will be released on Tuesday, which is worth watching as this was the main reason first quarter GDP growth was negative. Retail sales for May will no doubt receive a lot of coverage, but this is a lagging indicator.

Overseas, China’s CPI for May will be released Monday night. Most of Europe reports CPI throughout the week. South Korea’s central bank will decide interest rates on Wednesday (no change is expected). On Friday, China reports fixed asset investment numbers. If there’s a serious slowdown in the Chinese economy, it is likely to show up in this figure. A strong number would be bullish for commodities and emerging markets. Japan also reports some industrial production data on Friday.

Earnings: H&R Block (HRB), Lululemon (LULU) and RadioShack (RSH) headline a very quiet week for earnings reports.

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