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 Should July post strong job gains, it would point to an economy
strong enough for the Federal Reserve to raise interest rates for
the first time in almost a decade.
But concern about the strength of the economies in China and Europe,
along with a slide in energy prices, have made stocks stall. U.S.
oil futures <CLc1> fell more than 20 percent in July, the largest
monthly drop in almost seven years.
"We’re likely to be in first gear, crawling forward, not
dramatically faster, essentially flat for the year or up a little,
depending on which index you use," said Kate Warne, investment
strategist at Edward Jones in St. Louis.
Since it first closed above 2,100 almost six months ago, the S&P 500
has not deviated from that level more than 3 percent on the downside
or 2 percent higher. Its 100-day moving average is 2,096 and it has
been effectively flat for a full month. It closed Friday near 2,104.
Concern over a market topping near its record is evidenced by $2.8
billion in outflows from U.S.-based domestic-focused stock funds
last week, their second straight week of withdrawals, according to
Lipper data.
Those flows are, however, balanced by stock purchases from companies
themselves, which are on track to break the buyback record set last
year.
"There's so much money piled up on both the bullish camps and the
bearish camps. Companies have been buying back more stock than ever,
and investors have been selling just as aggressively,” said Brian
Reynolds, chief market strategist at New Albion Partners in New
York.
With both sides pulling the string, the S&P 500 could be stuck in
this tight range for the rest of the year, much like it was in 2011
after gaining 39 percent in the previous two years. Following a
near-64 percent gain from 2012 to 2014, a pause is arguably healthy.
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PAYROLLS SEEN KEEPING TREND
Current estimates for the payrolls report are for the U.S. economy
to have created 222,000 jobs in July, compared with 223,000 in June.
Only a significant surprise in the jobs print would shake the market
out of that balance.
"A good payroll number is a positive to the economy but it means the
Fed will be more likely to raise rates, so the result in the stock
market could be indeterminate," said Reynolds. He cites a break up
or further down in energy prices as the other likely reason for the
market to awake.
Despite concern that higher rates could drive investors away from
equities, some are seeing the Fed's expected move as freeing stocks
from a cloud of uncertainty, setting the stage for more gains.
"The realization the Fed is going to raise interest rates and it
doesn't hurt anything is what I think breaks us out,” said Art
Hogan, chief market strategist at Wunderlich Securities in New York.
(Reporting by Rodrigo Campos; Editing by Linda Stern and Dan
Grebler)
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