Data-Packed: Short Day Features ISM And China Manufacturing As Market Digests Solid Tesla Production

(Monday market open) The second half of 2023 kicks off on a shortened schedule today, with investors digesting positive delivery results from Tesla (NASDAQ: TSLA) and awaiting key manufacturing data. Major indexes began the day without much direction, but Treasury yields, the U.S. dollar, and crude oil all marched higher.

Automobile sales seem to be perking up lately as supply chain conditions improve, industry analysts note. Tesla’s 10% increase in quarterly deliveries announced over the weekend were the first quantitative evidence, and shares rose more than 6% in premarket trading.

The June ISM Manufacturing Index is due out at 10 a.m. ET and provides broad insight into U.S. manufacturing sector health. Analyst consensus from Trading Economics sees it improving slightly to 47 in June from 46.9 in May, but that’s still below the 50 needed to demonstrate expansion. It’s contracted seven months in a row.

Looking back to Friday, the S&P 500® Index (SPX) rose 1.2% to polish off gains of 16% in the first half of 2023. The Dow Jones Industrial Average ($DJI), by contrast, rose just 3.8% in the first half, weighed down by weak financials, health care, and energy sectors. The tech-packed Nasdaq Composite (COMP) rocketed to a first-half gain of 32%.

Technology and consumer discretionary stocks performed well on Friday as they have most of the year, while regional banks lagged. Still, every S&P 500 sector gained, and all rose in June. Industrials, materials, and real estate were among the leading sectors last month—a welcome sign that the rally might be spreading beyond tech and communication services. Even financials rose 5% for the month.

The economy’s resilience against the Federal Reserve’s steady rate hikes—even with banking turmoil, high borrowing costs, and consumer spending concerns in the mix—ultimately helped drive the year-to-date gains. Relatively cheap energy prices also provided a tailwind that shouldn’t be underestimated. Fear that rate hikes haven’t completely worked their way into the economy remains, however, making it unclear whether a recession can be avoided.

Stock market trading ends early today at 1 p.m. ET ahead of tomorrow’s Independence Day holiday. Daily Market Update won’t publish on Tuesday as markets will be closed. Don’t be surprised if trading is thin today, which could mean sharper moves in individual stocks. Anyone trading should consider extra caution and keeping trade sizes smaller than normal.

Morning rush

• The 10-year Treasury note yield (TNX) climbed back toward the top of its recent range to 3.85%.
• The U.S. Dollar Index ($DXY) inched up to 103.15.
• Cboe Volatility Index® (VIX) futures were steady at 13.81.
• WTI Crude Oil (/CL) rose to $71.35 per barrel as Russia and Saudi Arabia curbed production and exports. Crude prices fell 12% in the first half of 2023 despite OPEC slicing output.

Eye on the Fed

Futures trading indicates a nearly 90% probability that the Federal Open Market Committee (FOMC) will raise rates 25 basis points at its July meeting, according to the CME FedWatch Tool. A follow-up September rate hike has far less probability, at around 20%.

The Fed speakers calendar is a bit light this week. However, Fed minutes from the June 13–14 meeting are due out Wednesday afternoon and could draw more attention than usual. Market participants remain puzzled by the FOMC’s unanimous “pause” vote even as policymakers dialed up projections for future rate hikes. The minutes could shed light on the reasoning behind that decision and why the Fed settled on what appears to be a one-meeting “skip” rather than a long-term pause.

What to Watch

Factory gates: The June Chicago Purchasing Managers’ Index (PMI) data released last Friday raised caution ahead of today’s ISM manufacturing report; it came in at a lackluster 41.5. That was up just slightly from the six-month low of 40.4 in May and remained well below expansion territory.

China’s June Caixin Manufacturing PMI data published earlier today with mixed results. The index fell to 50.5 in June from 50.9 in May—a slight disappointment—but remained above the 50 level that indicates expansion. The Caixin results contrast the Chinese government’s weak PMI data released on Friday.

Jobs data ahead: June Nonfarm Payrolls bow on Friday morning and stand head and shoulders above any other reports this week in terms of potential market and interest-rate impact. If jobs growth, wages growth, or both are much higher than expected, that could cement ideas that the Fed will hike in July and perhaps again in September.

According to Trading Economics, analyst consensus for June jobs growth is 200,000—down from 339,000 in May—and for wage gains of 0.3%, the same as May’s.

Before that, we’ll receive the ADP National Employment Report for June on Wednesday morning.  Keep in mind the ADP data hasn’t been reflective lately of official government job figures.

Stocks in the spotlight

 

EV lot: Tesla deliveries rose 10% to 466,000 in Q2 from 423,000 in Q1 and topped analysts’ average estimate of 445,000, the company said. Sales rose 83% from a year earlier, partly due to expanded U.S. production capabilities. Concern about Tesla’s margins hasn’t dissipated, however, after the company cut prices earlier this year and continues to face tough competition in China. Prices were stable in Q2, CNBC reported, quoting research by Piper Sandler.

A few quarterly earnings reports are expected to trickle in this week. Companies scheduled to report include Daktronics (DAKT), a maker of giant video screens used at sports stadiums and elsewhere, along with Levi Strauss & Co. (LEVI), Lordstown Motors (RIDE), and Tupperware Brands (TUP).

Cautionary tale:The recent sharp gains in major indexes put many of them back in valuation territory well above the historic average. The SPX is above 20 on a forward price-earnings (P/E) standpoint for the first time since early last year. That means Q2 earnings season likely will need to be better than most analysts expect to help justify some of the high prices now seen in sectors like info tech.

Keep in mind, too, that most of the SPX and Nasdaq gains this year reflect meteoric rallies in the so-called Magnificent 7 tech stocks that dominate index performance by virtue of their mammoth market capitalizations.

Talking technicals: Resistance for the SPX appears to sit near 4,450, which is approximately the high reached earlier in June and right about where the SPX closed on Friday. A close above that this afternoon might be viewed as bullish, but likely low volume and a shortened trading day may be reasons to avoid drawing conclusions from today’s activity.

Above that, a level to watch could be 4,535, which marks the 78.6% Fibonacci retracement level of the January 2022 through October 2022 decline in the SPX. Breaking through that point might open up a test of the March 2022 high of 4,575. On any pullbacks, 4,330 stood its ground on a drop earlier in June and is also an important Fibonacci level. Even after last week’s rally, the SPX remains about 7% below its all-time high close of 4,796 reached in early January 2022. 

Calendar

July 4: Independence Day holiday, no U.S. trading.

July 5: May Factory Orders.

July 6: June ISM Non-Manufacturing Index and May JOLTS job openings.

July 7: June Nonfarm Payrolls.

July 10: May Consumer Credit

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Image sourced from Shutterstock

This post contains sponsored content. This content is for informational purposes only and not intended to be investing advice.