Q2 GDP growth comes below expectation amidst robust consumer spending.
Underwhelming economic growth
The U.S. economy grew 1.2% in Q2, lower than the consensus estimates of 2.6%, primarily due to the inventory
drawdown. Inventories fell by USD 8.1 billion, the worst fall since Q3 2011, as companies slimmed down
inventories and remained wary of investing amidst a weak global demand.
Author: Neeraj Khanna
US Focus Long
U.S. Indices traded with increased volatility this week, driven largely by biotech headlines,
retail earnings, and Friday’s annual economic symposium in Jackson Hole, WY. The Health
Care and Retail sectors suffered a setback, though both remain right at areas of support
despite the relative underperformance. The Yellen speech on Friday resulted in further chop in
the market as the Fed remains data dependent, though they believe the case for an increase in
interest rates has strengthened in recent months.
Overall, the Confirmed Uptrend remains, as distribution fell to four days on the S&P 500
and three on the Nasdaq. Additionally, the majority of leadership ideas continue to hold
trend, remaining above support levels. The market will now turn to the August nonfarm
payrolls number expected to be released next Friday.
European Focus Long
European markets rallied Friday, enabling them to gain more
than 1% on average for the week. The markets have alternated
between up and down weeks through August and now are up
almost 1% for the month. Italy and Spain rebounded strongly from
last week’s large declines, increasing 3.2% and 2.6%, respectively,
to lead the markets. Portugal and the U.K. were the only countries
to post losses, declining 0.1% and 0.2%, respectively.
Global Focus Developed Long
The Australia ASX All-Ordinaries Index lost 0.3% for the week. It
picked up three distribution days this week and now has six in the
last five weeks. Although price action has been fairly quiet, with the
index basically flat over the past three weeks, the increasing distribution is
enough to warrant caution.
Global Focus Emerging Long
Chinese markets fell more than 1% this week, logging one
distribution day for each index. Total distribution days over
the last five weeks stood at three for both indices as the markets
remain trading constructively above moving averages for a
second consecutive week. Going forward, we view support at
the 40-week moving average as a key area for indices to hold
(i.e. 1,931 for the Shenzhen and 3,007 for the Shanghai).
Markets will remain in a Confirmed Uptrend as long as these
levels are not breached.
Global Focus Frontier Long
US Focus Long
• U.S. Indices traded relatively flat for a second straight week, still holding above support levels
while leadership ideas continue to inch higher. The S&P 500 did pick up its fifth distribution
day on Tuesday, but it is expected to lose one distribution day next week. Each intraweek
pullback on the major averages has been met with support. The 21-day moving average
continues to hold on the S&P, though our primary support level is the rising 50-day moving
average, currently at 2135. The Nasdaq remains the stronger of the two indexes, showing very
little signs of weakness as it continues to trade just above its 10-day moving average.
• Leadership continues to act well, with the U.S. Focus List count remaining at its highest level
since September 2015. A further rise in distribution and a subsequent decrease in the number
of U.S. Focus List ideas would likely change our current positive stance on the general market.
As of today, we remain in a Confirmed Uptrend, now up 2.5% on the S&P 500 and 5.7% on
the Nasdaq since the July 8 follow-through day.
European Focus Long
European markets retreated this week, giving back most of their
gains from the prior week. The markets closed down 1.6% on
average, and are largely flat over the last three weeks. Denmark
was the only country to gain, up 0.4%, and Luxembourg was flat.
Four countries, Finland (-2.2%), Switzerland (-2.2%), France
(-2.3%), and Portugal (-2.6%), lost more than 2%. Spain and Italy
performed the worst, losing 3.1% and 4.2%, respectively.
Global Focus Developed Long
The Australia ASX All-Ordinaries Index was basically flat for
the week (-0.02%), consolidating in a tight range near 52-week
highs. It picked up one distribution day on August 18, giving
it four over the past five weeks. The relatively high number of
distribution days should be monitored closely, although it has not
yet translated to much in the way of losses. If the index corrects
a bit, AUD 5,500 is the first key level, right around prior highs
reached in May and fairly close to its rising 50-day moving average.
Global Focus Emerging Long
Chinese markets advanced, with both the Shenzhen and Shanghai
climbing above their 40-week moving averages. Volume for both
indices also came in strong for the week showing positive signs
for a continued move higher. The Shanghai has now followed
the Shenzhen and is trading above resistance it has not broken
through since August 2015. The next resistance could be over
3,650 which would suggest a near 20% gain from current levels.
Markets are back in a Confirmed Uptrend
