It was a shortened week for the markets, with only 3 1/2 days of trading. Even though the S&P500 finished the week down only 6 points, both the trading and release of market driving data occurred in a relatively frenetic pace. After a calm first half of the week, we saw volatility come back into play Thursday and Friday with 20+ point moves. Fortunately, though, we know how to take advantage of higher volatility (check out one of our upcoming seminars to learn more about how we do this).
First, we learned of a successful test launch of an Intercontinental Ballistic Missile (ICBM) by North Korea, which many fear will bring them one step closer to developing a fully functional nuclear weapons program. Aggressive North Korean rhetoric combined with proof of a successfully launched nuclear payload delivery vehicle spooked the markets a bit leading to the sell-off on Thursday.
Friday, however, saw a series of positive economic news stories that helped the market to regain its footing. The first of these was a better than expected jobs report. The U.S. economy added 222,000 jobs in the month of June vs a 179,000 forecast. This represents 81 consecutive months of job gains. Yet, we saw the unemployment rate actually increase by one-tenth of a point to 4.4%. The increase was explained as an influx of job-seekers looking to fill the vast vacancies in job openings that many companies are currently experiencing. Unfortunately, though one of the primary concerns from the jobs report was the noticeable and prolonged lack of an increase in hourly wages.
Wage growth hasn’t yet seen any meaningful increase in some time. However, many economists and market analysts believe that such growth may be just around the corner. With increasing numbers of apprentice programs for high school and college graduates and programs that help to re-educate those changing careers, the competitive landscape seems to be tipping in favor of the job seeker. This should, eventually, lead to an increase in wage growth.
Further, we saw the Treasury Department change their tone regarding highly controversial measures that relate to loans between corporate subsidiaries and their parent holding companies. This change in posture from the Obama era keeps with the current administration’s desire to promote themselves as a more business-friendly White House. These two announcements, despite their seemingly small economic impact, signaled to market participants that the economy remained on firm footing and that the continued rhetoric of deregulation remains intact. All of this helped the markets regain their losses from Thursday.
It should be noted that the increase in volatility, after such a long absence, is something that should be expected. As we head into the 3rd quarter of the year, typically a slower period for economic and earnings based announcements, we may see a further increase in market volatility due to domestic and geopolitical news stories. This means that as a responsible investor you need to have a strategy to take advantage of market growth, but that you also need to have a plan in place to protect your assets should events occur which cause the market to lose ground.
If you aren’t quite sure how to do either of these then attend one of our upcoming seminars or reach out to us directly.
Major Earnings for the Upcoming Week (tickers are listed with a “$” preceding them)
Pre-Market – Pepsi Co. Inc. ($PEP)
After Close – ARR Corp. ($AIR)
Pre-Market – Fastenal Co. ($FAST)
Pre-Market – Delta Airlines ($DAL)
Pre-Market – Citi Group Inc. ($C), Infosys ($INFY), JP Morgan ($JPM), PNC Financial Corp. ($PNC), Wells Fargo ($WFC)
Economic Releases (7/10– 7/14):
9:00 am CT – Labor Market Conditions Index
2:00 pm CT – Consumer Credit
11:00 am CT – Fed’s Brainard speaks
12:20 pm CT – Fed’s Kashkari speaks
6:00 am CT – MBA Mortgage Applications
9:00 am CT – Atlanta Fed Business Inflation Expectations (GDP Now component)
9:00 am CT – Fed’s Yellen testifies before Congress
9:30 am CT – Oil Inventories
12:00 pm CT – 10-Year Note Auction (Yield curve impact)
1:00 pm CT – Beige Book
1:15 pm CT – Fed’s George speaks
7:30 am CT – Weekly Jobless Claims
7:30 am CT – Producer Price Index (PPI)
9:00 am CT – Fed’s Yellen speaks
9:30 am CT – Natural Gas Inventories
10:30 am CT – Fed’s Evans speaks
12:00 pm CT – 30-Year Bond Auction (Yield curve impact)
7:30 am CT – Consumer Price Index (CPI)
7:30 am CT – Retail Sales
8:15 am CT – Industrial Production
8:30 am CT – Fed’s Kaplan speaks
9:00 am CT – Business Inventories
9:00 am CT – Consumer Sentiment
12:00 pm CT – Baker Hughes Rig Count
Disclaimers and Disclosures
Investing Risks: The risk of loss from investing in securities (stocks, ETFs, mutual funds, etc.), bonds, options, futures, and forex or related products, can be substantial. Investors must consider all relevant risk factors, including their own personal financial situation, before investing.
Investments in bonds and fixed income products are subject to various risks (including liquidity, interest rate, financial, and inflation risks) and special tax liabilities.
Options Risks: Options involve risk and are not suitable for everyone. Options Trading privileges are granted at the account level by your custodial broker and are subject to review and approval. Not all account holders will qualify. Before trading options, a person must receive a copy of Characteristics and Risks of Standardized Options. Individuals should not enter into options transactions until they have read and understood the risk disclosure document, Characteristics, and Risks of Standardized Options, which can be found on our website www.mscm.net. Copies may be obtained by contacting your broker or the Options Clearing Corporation.
Spreads, Straddles, Strangles, and other multi-leg option strategies can entail substantial transaction costs, including multiple commissions, which may impact any potential return. These are advanced option strategies and often involve greater risk, and more complex risk than basic options trades.
Portfolio Margin: A portfolio margin account generally permits greater leverage in an account, and greater leverage has the potential to create greater losses in the event of adverse market movements. Portfolio Margin, or Risk-Based Margin, is a margin methodology that sets margin requirements for an account based on the greatest projected net loss of all positions in a “security class” or “product group” as determined by the custodial brokers theoretical pricing model using multiple pricing scenarios. These pricing scenarios are designed to measure the theoretical loss of the positions given changes in both the underlying price and implied volatility inputs to the model. Clients participating in portfolio margin will be required to sign an agreement acknowledging that their security positions and property in the portfolio margin account will be subject to the client protection provisions of Rule 15c-3 under the Securities Exchange Act of 1934 and the Securities Investor Protection Act. Clients will be subject to minimum equity requirements by not only the custodial broker but also the managing firm.
General Disclosures: Any strategies discussed in this presentation, including examples using actual securities and price data, are strictly for illustrative and educational purposes only and are not to be construed as an endorsement, recommendation, or solicitation to buy or sell specific securities or strategies.
Investors should carefully consider the investment objectives, risks, charges, and expenses before investing in any investment product. To obtain a prospectus containing this type of information as well as other important information, contact your custodial broker. Please read the prospectus carefully before investing.
You should discuss any/all implications of investing in such products with your custodial broker, financial adviser/advisor, and/or tax advisor. Past performance is not indicative of future results.
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