Our forecast remains for a ‘choppy’ market with an upward bias. I mentioned on CNBC last Friday, that the old adage ‘A Trend is your Friend’ is a great roadmap. The last number of years the trend is higher. The Bulls have an edge here unless proven otherwise. A ‘trend is your friend’ may sound like a ‘cute’ little rhyme, but it’s quite profound. There are so many variables that control the market and it can seem so confusing. There are economic data points to consider, international concerns, Fed tapering and more. But the simple truth is, the market is trending higher over the past few years because of low interest rates and an improving economy.
Markets snapped their winning streak and ended the week down slightly as investors decided to take some profits off the table. The light economic calendar led to sluggish activity since investors were reluctant to commit to positions without new data to bolster their analysis. For the week, the S&P 500 lost 0.68%, the Dow fell 0.88%, and the Nasdaq slid 0.25%.1
Geopolitics took center stage last week when Iraqi insurgents captured Mosul and Tikrit, major cities in northern Iraq, and advanced toward Baghdad. In response to the threat, the U.S. moved a carrier group into the Persian Gulf to support the government in Baghdad. Analysts are worried about how instability in Iraq might affect global oil markets. U.S. crude oil rose to nearly $105/barrel on the new security fears.2 Iraq is an important Organization of the Petroleum Exporting Countries (OPEC) producer and disruptions in regional supplies could send oil prices through the roof and throttle consumer spending.3
In Ukraine, the ongoing conflict escalated when well-armed pro-Russia separatists shot down a Ukrainian military plane. Russia and Ukraine have been caught in a standoff since March, when Russia annexed Crimea. European leaders spoke with Ukrainian and Russian officials about the incident, stressing the need for a cease-fire in eastern Ukraine and a return to stability.4 EU countries rely on natural gas supplies that pass through Ukraine, and interruptions could cause price spikes and temper much-needed economic growth in Europe.
Economy At Home
On the economic front, last week’s data was mixed. Weekly jobless claims increased slightly, but the overall trend is still heading in the right direction, giving economists hope that businesses will step up hiring this quarter.5 However, the latest consumer sentiment numbers show that lower-income Americans are worried about wages and economic growth even as higher-income consumers are staying upbeat about their prospects. This split in attitudes could spell trouble for the economy if low-income Americans become reluctant to spend.6
The week ahead is packed with economic events, including the June Federal Open Market Committee (FOMC) meeting, which concludes Wednesday. Analysts don’t expect any surprises from the Fed, which has been taking pains to present an image of slow, predictable change in order to avoid spooking investors. However, analysts are hoping for more guidance about future interest rate increases as well as Fed economic projections, which will forecast Gross Domestic Product (GDP), unemployment, and inflation.7
7 http://fxn.ws/1lzMa2F , http://bit.ly/1kYSvoC
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