Tuesday, July 2, 2013
Stocks will likely not do much in today’s session ahead of jobs data on Friday. Volumes will likely start thinning in today’s session given the July 4th holiday on Thursday and Wednesday’s half-day session.
On the data front, we have the May Factory Orders and June vehicle sales numbers coming out today, with both readings expected to show improvements from the preceding months’ levels. Wednesday’s truncated session will see the service-sector ISM survey and the ADP jobs report. Monday’s manufacturing ISM survey provided some relief, with growth in new orders, production and inventories pushing the index back into expansion territory. Tomorrow’s ADP report will give us a preview of Friday’s jobs reading, though the decline in the manufacturing ISM index’s employment sub-component is somewhat worrying.
We will know more about the state of the economy after Friday’s jobs report, but the reality is that the economic outlook has been steadily stabilizing, belying earlier fears that this year’s fiscal tightening could derail the recovery. My sense is that this backdrop is sufficient to push the Fed towards tapering its bond purchases in the fall, though I do acknowledge that Fed officials have been going out of their way lately to sound otherwise. And that is the key disconnect between the market and the economy. The market’s gains over the last few days are way too much centered on what the Fed will or will not do – and that remains its most vulnerable spot.
Director of Research