Record Highs Raise Question Of What's Next, With Catalysts Somewhat Lacking

Records are made to be broken, the saying goes, but what happens now with key indices at new all-time highs? It’s unclear what sort of catalyst might keep the elevators going up.

Perhaps strong earnings — among the reasons indices set closing records yesterday and have climbed so smartly over the last few weeks — could continue their positive influence. A few Fed speakers are on the schedule, and retail sales and inflation data wait in the wings later this week. Otherwise, it looks like the markets are entering a light news period.

A long list of companies report before the open today, but arguably the real action comes after the close. That’s when Walt Disney Co DIS and Priceline Group Inc PCLN deliver their quarterly results. The sports-television channel ESPN, part of the Media Networks division at DIS, has been an ongoing concern for many analysts that follow the stock.

DIS and PCLN both play in the travel and leisure space, and it might be worth checking to see how DIS performed in that aspect of its business and how PCLN did overall. The economy has gained 260,000 leisure and hospitality jobs so far this year, the Department of Labor said last Friday, so that might send positive signals for companies like DIS and PCLN with exposure to travel and resorts. It goes pretty much without saying that strength in the travel and leisure industry often reflects strength in the economy. When people open up their wallets to go to resorts, that’s usually a good sign.

A 1950’s pop song asked, “How low can you go?” That question seems to apply to the market’s most closely watched fear indicator, the VIX, which closed below 10 for the first time in more than a decade Monday. The fear factor, which didn’t really assert itself much even ahead of the jobs report and French election, looks like it’s retreating even further. At this point, it’s unclear what sort of catalyst might bring volatility back. VIX fell slightly early Tuesday to 9.73.

This period of low volatility not surprisingly coincides with a lack of significant movement in the market indices, notably in the S&P 500 (SPX). When the SPX briefly rose above 2400 intraday Monday, it marked the first time since Feb. 9 that it had traded outside of the 2300 to 2400 range. That 2401 intraday high, by the way, represented a new all-time peak for the index, but a close above 2400 would probably be seen as constructive from a technical point of view, and the SPX just missed doing that the last two sessions. Let’s see what happens today on that front.

The Investor Movement Index, or IMX^SM, retreated to 6.06 for April, down from March’s all-time high of 6.22. Despite reducing their overall exposure to equities, TD Ameritrade retail clients remained net buyers in this IMX period. Some popular sectors included info tech and telecom, the IMX showed.

On the economic data front, the March Job Openings and Labor Turnover Survey (JOLTS) and wholesale inventories (see below) both come out today. Several Fed speakers also take the stage. Gold and oil continue to sputter, while bond yields rise and the 10-year yield is testing 2.4% for the first time in a while. The dollar looks a little stronger this morning, while European and Asian markets mostly rose.

China Worries Resurface

Though the U.S. economy got good news on the jobs front last week, concerns developed recently across the Pacific. Some analysts say slumping demand from China may be partly behind recent weakness in commodity prices. Crude oil grabs most of the headlines, but steel, iron ore, and copper were among the other materials whose prices fell last week. There appears to be less demand from China’s big economy for crude and other commodities, and any weakness in China is something to watch for the broader market. Recall that the big drop in stock prices early last year came amid concerns about China’s economy. China’s April trade data, which came out  Monday and missed analysts’ expectations, only added to worries. There’s probably no reason to panic yet, but additional data could bear watching because China’s influence is immense.

Meanwhile, Q2 Treating U.S. Kindly

Anyone looking for another sign of U.S. economic improvement might want to check the latest Q2 economic growth estimate from the Atlanta Fed’s GDPNow indicator. It’s predicting 4.2% gross domestic product (GDP) growth this quarter. That’s compared with the government’s first estimate of 0.7% Q1 growth, and if it turns out right, would continue the economy’s recent pattern of improved growth in Q2 vs. Q1. The GDPNow indicator gets its next update today. Though the GDPNow calculator sometimes differs from analysts’ projections — in part because it looks at metrics in a slightly different way — it’s worth noting that it ended up closer to the government’s bearish first estimate for Q1 growth than many more bullish estimates from Wall Street.

About Today’s Wholesale Inventories

The first thing to remember about the government’s wholesale inventories data a little later this morning: They’re from March. And the second thing to remember is that March was a slow month for the economy, as evidenced by a lot of data we’ve seen already, including jobs and retail sales. So if today’s data appear weak, it wouldn’t be a huge surprise. Inventories are expected to fall 0.1%, according to consensus analyst projections collected by Briefing.com, compared with a 0.4% rise in February. As always, keep an eye on inventory-to-sales ratio, which was unchanged at 1.28 in February but down from 1.36 a year earlier. If this metric falls, it might indicate possible future growth in business pricing power. By the way, the same March madness probably affected the JOLTS jobs report, which also comes out this morning.