Don’t Fear the Fed: S&P 500 Hits New High; Dow Industrials Back Above 17,000

Don’t look now but the S&P 500 has hit a new high–again.

REUTERS

The S&P 500 gained 0.3% to 1,992.37 today, its highest close ever. The Dow Jones Industrial Average, meanwhile, rose 0.4% to 17,039.56–putting itself back on the right side of 17,000. The Nasdaq Composite advanced 0.1% to 4,532.10 and the small-company Russell 2000 finished up 0.2% at 1,160.12.

Stocks got a boost from strong economic data today. U.S. jobless claims fell to 298,000 last week, beating forecasts for 302,000, while existing home sales rose 2.4% in July. Then there was the Philadelphia Fed index, a gauge of economic activity in the Philadelphia region, which rose to its highest level since March 2011. Pierpont Securities’ Stephen Stanley ponders the “extreme” rise:

…I don't usually write about Philly Fed, but the results were so extreme that I though it warranted a mention.  The headline gauge accelerated in August to +28.0, a third straight monthly rise and the highest level since March 2011.  That's the good news.  The bad news is that every major subindex was down substantially (the headline index is based on a separate question and is more of a sentiment gauge, whereas the other indicators are based on respondents' own businesses' performance).  For example, the new orders and shipments measures, both at +34.2 in July, plunged to +14.7 and +16.5 respectively, while the employment barometer went from +12.2 to +9.1.  The good news is that the prices paid and prices received gauges also moderated.  Only the inventories index rose.  As with the headline index, (again, basically a sentiment gauge), the expectations measures point to widespread optimism.  The headline expectations barometer soared by 8 points in August to +66.4, the highest reading since June 1992.  The future shipments gauge at +67.4 was also the highest since June 1992.  Expectations with regard to prices (both prices paid and prices received) ratcheted noticeably higher in August.  Interestingly, both hiring and capital spending plans moderated in August despite this ebullient outlook, underscoring a persistent problem for the economy in this expansion.

RBC’s Robert Sluymer and Anna Drotman see another pullback in stocks coming by early September:

Short-term/daily momentum indicators, tracking 2-4+ week directional swings, were helpful to identify oversold market lows in early August. Those indicators are likely to move back to overbought territory heading into late-August/early September and set the stage for another correction into mid-late September. By that time, we expect a more durable intermediate-term entry point to be at hand, consistent with a seasonal rebound through Q4.

Rhino Trading’s Michael Block previews Janet Yellen’s speech tomorrow morning in Jackson Hole, Wyoming:

So we got our expected hawkish moment, get ready for the expected dovish moment now, as Janet Yellen speaks in Jackson Hole tomorrow at 10AM ET.  The topic is jobs, and I expect Yellen to talk about slack in the labor market and low wages even as she acknowledges the overall improvement.  In terms of tightening, I expect her to sound less hawkish and committal than those Minutes yesterday.  In other words, Janet Yellen is going to keep and confirm her dovish bent tomorrow.  Everything remains data dependent – we know all of this already.  The most likely outcome of the speech?  The resumed grind higher.  That's it.

That’s better than nothing.