U.S. equities declined on Tuesday as oil prices entered a bear market on Monday, commonly defined as a 20% decline from a recent high. Throughout 2015 & 2016 we saw equity and oil prices become highly correlated which has unwound over the past month, see the first chart below, and the concern is we will see a similar effect as oil prices look set to move lower on supply concerns, impacting both sentiment and inflation expectations. Both the S&P 500 & Nasdaq 100 fell -0.64% & -0.77% respectively while the U.S. dollar index finished -0.69% weaker.
Data out of the U.S. for personal income and consumer spending weighed on the U.S. dollar as personal income (MoM Jun) remained stable at 0.2% with expectations of a 0.3% increase while personal spending (MoM Jun) increased 0.4% beating estimates of a 0.3%. This increase in spending compared with a modest increase in income suggests that consumer are dipping into their savings to fund spending. Finally a core consumption expenditure measure (YoY Jun) remained stable as expected at 1.6%.
I’ve included a second chart below which examines the S&P500 from a purely technical point of view. Overall the break to a new all-time high of 2178.29 is encouraging from a longer-term perspective however given the heavily overbought nature of momentum indicators followin