This is the biggest week of the quarter in terms of earnings. 29% of the S&P 500 will be reporting and 750 companies in total report. The docket is loaded with energy and materials firms. Adding to this is a heavy slate of economic news:
- Monday: New home sales
- Tuesday: July Conference Board Consumer Confidence, S&P/Case-Schiller Home Price Index
- Wednesday: June durable goods orders, Federal Reserve Beige Book, weekly crude inventories
- Thursday: weekly initial jobless claims
- Friday: Advance Q2 GDP, July Chicago PMI
The government is auctioning off an incredible $115B in short-term notes next week. This could create the risk of higher yields and a skittish stock market. At some point the demand for bonds is going wane and yields are going to spike.
The risks in this market are rapidly increasing. There is a deep feeling of complacency in the market. The latest AAII sentiment reading came in at 38 – a fairly neutral reading, but up substantially in the last two weeks. Meanwhile the recent rally has been on very low volume and very questionable fundamentals:
The rapid decline in the VIX and Yen also have me feeling a bit uneasy about the current move. The majority of the strong tech firms and banks have released earnings. Now we’re moving into the real economy names – energy, materials and consumer related names. I don’t expect the news to be nearly as good as we get deeper into the earnings season. We’re also moving into a seasonal period that is very weak for the stock market. Investors always try to anticipate the scary month of October by getting out in September. We could see a repeat this year, especially considering the disaster we saw last year. This is a fast moving market. I’ll adapt with it, but for now, I am standing pat on my bullish stance with the expectation of short sellers capitulating at some point in the next week or so. That will be your chance to move to a neutral position or get short. Stay tuned.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.