Market Perspective for August 7, 2015

The S&P 500 Index came into Friday trading with a roughly 1 percent loss on the week, while the Dow Jones Industrial Average fell back into negative territory for the year. Biotechnology slid on Thursday and pulled the healthcare sector down for the week; energy also fell as oil prices approached their 2015 lows.

Momentum names suffered from disappointing earnings reports this week as well. The second quarter earnings season has seen investors at their most discriminating since 2012, rewarding companies that beat expectations and harshly punishing those that did not. Yesterday, Keurig Green Mountain (GMCR) fell 30 percent on poor earnings and guidance. Tesla (TSLA) lost 11 percent for similar reasons. Fitbit (FIT), which is up from its IPO price less than two months ago, slid 15 percent. The Planet Fitness (PLNT) IPO on Thursday was also a disappointment, with shares falling 9 percent from its initial IPO price.

Speculators in the futures market are upping their bets on a September rate hike. The overall probability of a hike as of Friday morning was 93 percent. Speculators even dropped their odds of a 0.25 percent increase and raised the odds of a 0.75 percent hike, a nearly impossible outcome, but reflective of the rising confidence of an imminent increase.

It was one week ago that the Atlanta Fed President Lockhart said economic data would have to fall for him to oppose a September rate hike and nothing occurred over the past few days to dissuade that decision. Personal income was up strongly in June and consumer spending was consistent with prior quarters. Auto sales climbed to a 17.6 million annualized rate in July, well ahead of estimates and the 17.1 million figure from June. The ISM Services climbed to 60.3 percent, exceeding estimates of 56.5 percent. Any number over 50 indicates expansion.

Today’s government reported job growth was a bit slower than expected, but unemployment held steady at 5.3 percent in July and wages were up 2.1 percent over last year. The U.S. dollar immediately rallied on the news. Next week, the government will report unit labor costs for the second quarter.

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