Market Perspective for August 12, 2016

All three major large-cap indexes achieved new all-time highs over the past week.  The Dow climbed above 18,600 before settling back on Friday, while the S&P 500 cleared 2,185 and the Nasdaq topped 5,235.

While import prices increased more than expected, lower unemployment claims reinforced the consensus opinion in favor of labor market strength. The Job Openings and Labor Turnover Summary (JOLTS) report was strong as well. The Labor Market Conditions Index (LMCI), an aggregate of 19 labor market data points swung positive for the first time in 2016, providing an additional argument in favor of a rate hike, though one this year remains unlikely.

Wholesale inventories for June improved despite an unexpected drop in U.S. productivity. The housing market continued to strengthen as mortgage applications rose 7 percent. Former Chairman of the Federal Reserve Ben Bernanke believes the Fed will be reluctant to raise interest rates in the near future.

Several retailers beat expectations earnings expectations. Macy’s (M) announced a strategic plan to close stores and strong online sales lifted earnings. Kohl’s (KSS) gross margins improved on inventory management initiatives, while shares of Nordstrom’s (JWN) also rose almost 7 percent on better-than-expected earnings. Although luxury goods retailers Coach (COH) and Michael Kors (KRS) reported relatively flat earnings, shares of online retailer Alibaba (BABA) were up close to 8 percent as the company reported strong revenue growth. Disney (DIS) delivered earnings per share and revenues that were in line with expectations. SPDR S&P Retail (XRT) saw a modest 1 percent gain on the week.

Finally, oil was up on the week, but fundamentals still point to lower prices. Production cuts being discussed will come off of inflated production numbers, which effectively will allow the Saudis and Russians, among others, to increase production going forward. U.S. shale oil producers have become extremely efficient and are currently selling oil for less than $40 a barrel.  August is also a quiet period for the markets. The number of short positions grew when oil dipped to $39, but they have been squeezed by aggressive bulls taking advantage of illiquid markets.

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