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Things could get interesting in the stock market next week.
It may be a holiday-shortened week in the stock market, but investors can expect plenty of fireworks to keep them on edge. From economic data to the tech sector’s meltdown and even President Donald Trump’s fusillade of tweets, there will be no dearth of catalysts for stocks in the first several trading days of July.
Starting with manufacturing data and auto sales on Monday, it will be a busy week for economic news with implications for Wall Street.
“One of the things weighing on the market is whether the economy is slowing down given the weak data over the past few weeks,” said Brad McMillan, chief investment officer for Commonwealth Financial Network.
As such, investors are likely to keep a watchful eye on data for clues on whether the economy is contending with merely seasonal sluggishness or a more pernicious and prolonged slide, he said.
Lackluster inflation has been the bugaboo of central bankers world-wide, even if officials at the Federal Reserve and Bank of England are hinting at the end of the easy-money era that persisted in the fallout from the 2008 financial crisis and helped to buoy stocks and bond prices.
Against that backdrop, investors will be keenly awaiting minutes from the Federal Open Market Committee’s June meeting when policy makers lifted interest rates and struck a more hawkish tone. That account of Fed discussions is due Wednesday, while the weekly jobless claims are scheduled for Thursday, which may serve as a preview of sorts for June nonfarm payrolls on Friday.
“The whole week will basically be about leading up to this report. After the disappointing 138,000 reported in May, I suspect the report will come in stronger,” said Bob Pavlik, chief market strategist at Boston Private Wealth. “I wouldn’t be surprised to see some downward revision to May but the street will pay more attention to the headline figure.”
Economists polled by MarketWatch are estimating that 174,000 jobs will be created in June, compared with a woeful 138,000 in the prior month, with unemployment expected to tick higher to 4.4% from 4.3%.
The big market trend to monitor is likely to be newfound volatility in technology shares, highlighted by outsize moves in the Nasdaq Composite Index COMP, -0.06% The large-cap Nasdaq-100 index NDX, -0.11% the popular PowerShares QQQ Trust Series 1 QQQ, +0.04% which tracks the Nasdaq-100, and the tech-focused Technology Select Sector SPDR ETF XLK, -0.09% Those gauges all saw declines of at least 2% in June, but still boasts double-digit returns in the first half of 2017.
A steady run-up in tech has raised questions about valuations that continue to dog a sector that represents about 23% of the S&P 500’s price moves, boasting the biggest influence on the broad-market benchmark, ahead of health care and financials.
Despite the recent downdraft, some bullish strategists believe this may be the appropriate time to buy battered tech names opportunistically.
“I think those that are selling into the tech weakness are weak hands and just taking profits. If I didn’t own tech, I’d be watching for a bottom to form and as it did, I’d be a buyer of names such as [Google] which has been hit relatively hard,” said Pavlik.
Google’s parent Alphabet Inc. GOOG, -0.99% GOOGL, -0.87% was among the biggest Nasdaq laggards this week, slumping 5.7%. Amazon.com Inc. AMZN, -0.81% was also a big loser, dropping 3.6%, while Facebook Inc. FB, -0.04% dropped 2.6% and Apple Inc. AAPL, +0.24% slid 1.5%.
Richard Hastings, macro strategist at Seaport Global Securities LLC, also believes the dramatic retreat in high-profile tech stocks will subside.
“There’s just too much demand and the other sectors don’t have the futuristic talents that tech stocks enjoy,” he said.
Meanwhile, investors can always count on President Donald Trump to animate markets, if the news cycle ebbs during the week.
Many market pundits argue that Trump’s tweets have little lasting influence on stocks, but they are likely to remind frustrated investors that key policy mandates remain unfulfilled campaign pledges. Some even suggest that investors are becoming inured to the president’s social-media habits.
“The DC tweet storms are not a major catalyst for markets, despite what they feel like,” said Hastings. “If you like Martin Scorsese movies, then there’s a tweet for you. Every week. At this pace, it all gets boring and dull, so President Trump might turn up the heat and crank out some amazingly insulting New York City-style tweets that nobody believes, unless you’re from the metro area.”
One other consideration for investors is traditional investment trends over the remaining six months of 2017, which have traditionally proven a lackluster period for equities.
As the chart from Chris Verrone at Strategas Research Partners illustrates, stock-index benchmarks tend to underperform in July to October, compared with other months going back three decades.
Nonetheless, stocks could score a lift during the coming rough patch as “historically a strong first half often bodes well for an above average second half,” according to Verrone.
The Dow Jones Industrial Average DJIA, +0.29% and the S&P 500 SPX, +0.15% climbed on Friday to finish out June higher while Nasdaq ended the month in the red. However, all three major indexes logged strong gains in the first half of the year with the Dow rising 8%, the S&P 500 up 8.2% and the Nasdaq rallying 14%, its best six-month performance since 2009.