After the July 4th holiday weekend US stocks started the week off with a distribution day. A late day rally lifted the market during the final hour of trading. Not the type of action you want to see in a pullback, but this market is far from “normal.” Perhaps this is the new normal? Small caps suffered the most damage today followed by the NASDAQ Composite. The Dow closed the day down 108 points as JNJ and PG helped curb losses from JPM and CAT. Utilities were the biggest winners on the session as Energy names were the worst performers. Hard to make much of one day, but for now we are still in a range bound market.
Energy fell nearly 2% on the day as Crude Oil fell 4% with a $46 handle. We can certainly blame dollar strength, but the commodity has been struggling with $50 since its epic rise off February lows. Pound and Euro weakness is showing up in Yen and US Dollar strength. GBPUSD hit fresh new multi-year lows as traders are fleeing the pound. Good news for those who travel to the UK! EURUSD is also struggling and appears to be headed lower. This time we can blame Italian banks for the Euro weakness. Stick with the prevailing trends and you will come out on top. How many believed Brexit would happen? No need to stumble over the why. You will waste your time.
Tomorrow we’ll get the release of the most recent Federal Reserve meeting minutes. It will be interesting to see how the market will react to the minutes. Of course the meeting happened prior to Brexit and most will hunt down how much of an impact the Fed sees with Brexit happening. Odds are creeping higher for a rate cut! Is QE4 around the corner? Nothing would surprise us, but continued dollar strength may put pressure on the Fed to curb the US Dollar pushing higher. We are living through fascinating times during a volatile market.
Speaking of volatility the VIX closed at its lows as the market rushed higher during the close. Market participants are not expecting future volatility. Even with the V shaped recovery from Brexit! Fun times.
We hope you had a safe and enjoyable July 4th long weekend. Enjoy the trading week!
