Weighing the Week Ahead: Has the Market Rotation Begun?

We have normal week for economic data, and a big week for earnings reports. The last Presidential debate will grab headlines. We have been monitoring these factors for weeks, but something new is showing up in the data. Let’s call it a “stealth rotation” from bonds to stocks and from bond substitutes to less favored stocks. If the punditry carefully watches the data, they will be asking:

Has a market rotation begun?

Last Week

Last week’s news was pretty good, despite the negative reaction in stocks.

Theme Recap

In my last WTWA, I predicted special attention to the early earnings reports and questions about whether the earnings recession was ending. That was a reasonable guess, although most of the commentary seemed to focus on a couple of big earnings misses. There was also plenty of competition from some surprising China data, the ongoing Fed debate, and of course, the election news.

The Story in One Chart

I always start my personal review of the week by looking at this great chart from Doug Short. Stocks had a negative week. You can see the opening gap on Thursday after the Chinese trade data, and also Friday’s failed rally.

Doug has a special knack for pulling together all of the relevant information. His charts save more than a thousand words! Read his entire post where he adds analysis grounded in data and several more charts providing long-term perspective.

The News

Each week I break down events into good and bad. Often there is an “ugly” and on rare occasion something really good. My working definition of “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too!

The Good

  • JOLTS continues to show a solid labor market. Chair Yellen uses it as a signal for a tight labor market. The healthy “quit rate” shows that many people are comfortable in voluntarily leaving jobs. Some reports focused strictly on the number of job openings, which is a poor use of the data.

  • Initial jobless claims also show labor market strength.

  • Retail sales provided the week’s best economic news, rising 0.6%, the best increase in three months. (Bloomberg)