Stocks have something to build upon Thursday. Equities broadly gained ground on Wednesday thanks to a sweet upgrade to Q2 GDP growth. The good news was good enough to outweigh investors' concerns about intangible risks relative to North Korea and elsewhere. On Thursday, with important data due from China's manufacturing sector and U.S. consumer spending, and while investors build hope for a tax cut this year, stocks have a chance to build upon Wednesday's gains. Despite my enthusiasm on the economy and its power to fuel stock gains, which I expect later this year and next, I remain cautious currently due to the seasonally soft calendar period and North Korea tensions.
The SPDR S&P 500 (NYSE: SPY) marked a 0.5% gain Wednesday thanks to the good news on America's economy. Equities were broadly higher, with stocks along the fringe of risk in the Nasdaq and small cap sector climbing by a greater degree. The catalyst was the upgrade of Q2 GDP to 3.0% growth, from 2.6% at initial report. Safe havens gave way some, but we continue to closely monitor developments around the still red hot Korean Peninsula.
|Security||08-31-17 05:44 AM EDT|
|SPDR S&P 500 (NYSE: SPY)||+0.3%|
|SPDR Dow Jones (NYSE: DIA)||+0.2%|
|PowerShares QQQ (NASDAQ: QQQ)||+0.3%|
|iShares Russell 2000 (NYSE: IWM)||+0.4%|
|Vanguard Total Stock Market (NYSE: VTI)||NA|
|iPath S&P 500 VIX (NYSE: VXX)||-0.9%|
|PowerShares DB US Dollar Bull (NYSE: UUP)||Unchanged|
|PIMCO Active Bond (NYSE: BOND)||NA|
|United States Oil (NYSE: USO)||+0.4%|
|SPDR Gold Trust (NYSE: GLD)||-0.04%|
Thursday morning offered good news too, and provided stocks another stepping stone to higher ground. Official data from China's National Bureau of Statistics showed the nation's Manufacturing Purchasing Managers Index (PMI) gained to 51.7 in August, beating the economists consensus for 51.3 (as surveyed by Reuters). Even better, a sub-index of manufacturing production gained 0.6 points to a higher 54.5 (readings above 50 mark expansion). New orders recovered from July softness, and marked 53.1. A reading of the non-manufacturing PMI showed decrease to 53.4, from 54.5, but I'll speculate this has more to do with China's domestic economy while the manufacturing data implies improvement in the west. Thus, I see the news on net as great, as it appears improved demand for China made goods from the U.S. and Europe revitalized exports.
U.S. stocks might also benefit later Thursday when the Personal Income and Outlays Report is published for the month of July. At last check for June, consumer spending had only marked a 0.1% gain. Economists see July producing a better rate of growth to 0.4%. And in June, personal income growth was nonexistent due to the weight of less dividend and interest income on compensation gains. This month, economists see personal income also rising 0.4%. Yet, the Fed's favored inflation gauge, the Core PCE Price Index, is only seen increasing 0.1% in July. On a year-to-year basis, the Core PCE Price Index (inflation) is seen up 1.4%, against 1.5% in June.
Call it Goldilocks, given growth in spending and income with little inflation. While some would like to see more inflation, I'm in the camp of less for longer is best for the economy and for corporations, so stocks too. If the data comes in as expected or better, stocks should mark another leg higher Thursday.
Another key data point Thursday is the Pending Home Sales Index release for July. Pending Home Sales are a lead indicator for existing home sales, or the bulk of the real estate market. A Pending Sale is marked when contracts are signed, but not yet closed. Economists see a 0.4% increase in the index in July, off the 1.5% increase marked in June. The latest data for new and existing home sales was weak, so positive data from the leading indicator here would be helpful. The housing sector is important to the U.S. economy, because it drives all sorts of ancillary home related spending.
Other data will reach the market today for announced monthly corporate layoffs, initial jobless claims, Chicago PMI and more, but I see none of it critical to the broader stock market.
Neither do I see any individual corporate earnings reports that might move the market on the whole. However, significant reports are due for Ambarella (Nasdaq: AMBA), Campbell Soup (NYSE: CPB), Ciena (Nasdaq: CIEN), Cooper Companies (NYSE: COO), Dollar General (NYSE: DG), Genesco (NYSE: GCO), Lululemon (Nasdaq: LULU), Oxford Industries (NYSE: OXM), Palo-Alto Networks (Nasdaq: PANW) and Tech Data (Nasdaq: TECD).
In conclusion, stocks have a chance to build upon Wednesday's strength again on Thursday. Positive manufacturing data from China should serve U.S. equities because of the indication for U.S. demand for goods. Also, the Personal Income & Spending data due today could show further improvement in consumer spending, as was indicated in yesterday's GDP revision. Personal income gains are expected as well and could serve stocks. Pending Home Sales data might help offset concern about recent softness in home sales. Stocks should build upon yesterday's gains, but we are keeping our eye on developments around the Korean Peninsula and are mindful of seasonal softness. The economic strength we are seeing now should increase and serve stocks later this year and next. For more of my regular work on markets, readers are welcome to follow the column here at Seeking Alpha.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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