Slight Correction, Nothing Serious

The stock market fell slightly Friday with the S&P 500 down 0.18%. The market had a bad week as the S&P 500 is about 2% off its high. CNBC has a weird headline saying the market rallied on Steve Bannon’s resignation from his role in the White House even though it was down on the day. That seems to me like a politically motivated headline. It was another one of those days where the VIX tracked the market as the VIX was down 8.30% to 14.26. This minor selloff which has basically consisted of two down days put into context is a ‘nothingburger.’ As you can see from the chart below, the number of moves exceeding 5%, 2%, 1%, and 0.5% are near their 50-year lows. There might be some large moves coming in the fall, but in the next two weeks, I don’t see a new trend developing as the volume will be low in the dog days of summer.

Economic Updates

For the rest of this article, we’ll look at the economic reports which came out. They were mostly positive despite slight weakness seen in the stock market. The first report we’ll look at is the Philly Fed Manufacturing Business outlook. As you can see from the chart below, the current diffusion index fell slightly from 19.5 to 18.9 in August. The 6-month forecast increased from 36.9 to 42.3. The new orders index shot higher from 2.1 to 20.4. The prices paid and prices received indexes went up slightly, but there’s nothing that would indicate accelerating inflation. Overall, this was a solid report which is consistent with the Empire State Manufacturing report which showed the manufacturing industry is doing well.

On the industrial production front, growth rose 0.2% in July which was below expectations for 0.3%. Factory production fell by 0.1% because of weakness from autos. Manufacturing this year has been helped by the weakness is the dollar which makes it relatively cheaper to produce goods here. It’s also helped by the improvement in energy prices. Leading indicators increased 0.3% which was in-line with expectations. The 3 tenths of a percentage point decline sequentially came from the weakness in housing permits.