What to expect in trading tomorrow, and will the S&P 500 make history this month?
Uncertainty surrounding the Strait of Hormuz continues to loom over the markets. Wall Street rose to a new high after the employment report dramatically lowered expectations for an interest rate hike. All eyes will be on the consumer price indices in the US and Israel. The reporting season in Tel Aviv is heating up with reports from four of the five largest banks. And also: the strategist who predicts that the S&P 500 will cross the 8,000-point mark this month.
1. Events that will influence the trading week
Markets in Israel and around the world are entering another tense week on the geopolitical scene. Reports of an extensive list of demands published by Iran as a condition for the reopening of the Strait of Hormuz cast serious doubt on the claim of the Donald Trump administration that a deal between the two sides is near.
At the same time, investors will also examine the rise in the level of tension in the north, after two soldiers were killed and four were seriously wounded last week in an explosive device incident in Lebanon.
In the US, a weaker-than-expected employment report dramatically reduced the chance that markets are pricing in for an interest rate hike in September. The Consumer Price Index for July - which is also expected to have a decisive influence on the direction of the interest rate - will be published this coming Wednesday. In Israel, the price index will be published on Friday.
In the US, reports from Cisco and Applied Materials will be published this week, on Wednesday and Thursday, respectively. In Israel, the reporting season will continue to gain momentum, with reports from the banks: Hapoalim (Tuesday), Leumi (Wednesday), Beinleumi (Wednesday), and Discount (Thursday). In the defense sector, Next Vision will report on Monday and Elbit Systems will report on Tuesday.
2. The local stock exchange struggled, Wall Street rose to a new high
Dual-listed stocks will return from Wall Street with a positive arbitrage gap of about 0.45%. Tower is expected to climb by about 5%, while its peers Camtek and Nova are expected to weaken by up to 2%. Nice is expected to rise by over 4%, and Teva and Elbit Systems will strengthen by up to 1.5%.
The Tel Aviv Stock Exchange closed the trading week with a mixed trend. On a weekly basis, the TA-35 index rose by about 0.5%, the TA-90 index lost about 2.2% of its value, and the TA-125 index weakened by 0.2%. The banking index climbed by about 2.4%, while the construction and oil/gas indices saw declines.
El Al was the star of the past week, soaring by about 20% after reporting that its net profit in the second quarter doubled. Palo Alto stock, which officially entered the leading indices, jumped by about 9%.
Unlike the local stock exchange, Wall Street received a tailwind from developments on the geopolitical scene and closed a green week. The S&P 500 jumped by about 3.6% to a new all-time high, crossing the 7,700-point mark for the first time; the Nasdaq rose by about 5.2%; and the Dow Jones strengthened by about 3%. Berkshire Hathaway published impressive financial results, with net profit doubling to 25.67 billion dollars.
3. The yellow metal is starting to shine again
Given the decent gains recorded on Wall Street and some easing of geopolitical tension, the shekel strengthened against the dollar over the past week by about 1.8%, and its continuous rate settled around the 3 shekel mark. The Dollar Index (DXY) weakened by 0.4% to 99.5 points.
On a weekly basis, oil prices fell by over 7%, but started to climb again towards the end of the week. Brent crude closed around 83 dollars per barrel, while American-type oil (WTI) closed around 78 dollars per barrel.
Against the backdrop of the decline in interest rate expectations in the US and the weakening trend of the dollar, the price of gold rose last Friday by over 2% to a two-month high, and traded around 4,400 dollars per ounce.
4. The US employment report turned the tables
The employment report for July in the US surprised to the downside and showed a decrease of about 23 thousand jobs, while the consensus of analysts expected an addition of 83 thousand jobs. The unemployment rate fell to 4.1%. Following the report, the probability that markets are pricing in for an interest rate hike in September dropped from about 67% a week ago to about 44%.
In a column by CNBC's Jeff Cox, he noted that the numbers are "misleading" due to seasonal factors. The upcoming Consumer Price Index for July will be critical. In Israel, the Consumer Price Index for July is expected to show a rise of 0.2%-0.3%. Psagot analysts predict that the annual inflation rate will fall to 1.5% and expect the Bank of Israel to wait with an interest rate cut until October.
5. Will the S&P 500 cross a historic threshold this month?
Tom Lee, who heads the Fundstrat Capital fund, estimates that the S&P 500 may cross the 8,000-point mark for the first time this month. He noted the strong reporting season and positive technical indicators.
"I think technically, it looks quite positive," Lee said. "I'm still bullish on chips, software, and Ethereum." In an interview with CNBC, Lee also noted that the deleveraging process in the AI field has prepared the infrastructure for further gains.
