Posted | by David Moenning |

Good morning and Happy Friday.

Well, BREXIT is back in the headlines again this morning. It will be one month tomorrow since the Brits voted to focus on their freedom and leave the EU. The good news is that after a two-day freakout, the global markets decided to focus on the macro picture (which by most counts is improving) and U.S. stock market indices responded by breaking out of a long trading range and posting a series of new highs.

The bad news is that the most recent economic data from across the pond is disturbing. We learned this morning that Markit's estimate for the PMI (Purchasing Managers Index) in England plunged in July. The composite estimate (which includes both the services and manufacturing sectors) was reported at 47.7, which was (a) well below the 50-level - which is the demarcation line between expansion and contraction - and (b) a seven-year low.

In the report published Friday, Markit said there was a "dramatic deterioration" in economic conditions - which are indeed strong words from a group of economists! The report is causing some analysts to contend this is the strongest evidence yet that the vote will ultimately usher in a recession in the world's fifth largest economy. Ughh.

However, in what is seen by many as sheer perversion, market logic dictates that this is actually good news. For those not familiar with the global central banker trade, the weak data is being seen as a strong argument for the BOE (Bank of England) to deliver fresh stimulus measures - and soon.

As such, stocks in Europe are actually none the worse for wear and U.S. futures are actually pointing slightly higher before the open in the U.S. However, we do need to keep in mind that the major indices are definitely overbought from a short-term perspective and that a period of "testing/retesting" the breakout level (around 2120 on the S&P 500) would actually be a positive development in the long run.

Current Market Drivers

We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).

      1. The State of Global Central Bank Policies
      2. The State of the Earnings Season
      3. The State of U.S. Economic Growth
      4. The State of the Stock Market Valuations

Thought For The Day:

"Failing to plan is planning to fail." --Ben Franklin

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Here's wishing you green screens and all the best for a great day,

David D. Moenning
Founder: Heritage Capital Research
Chief Investment Officer: Sowell Management Services

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.

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