Weekly market update
Stocks edged lower last week with the Dow falling 0.6%, the S&P 500 down 1.2%, the NASDAQ fell 1.1% and the Russell 2000 index fell 1.4%. Small caps have been underperforming their large cap counterparts since mid-March and the summer tends to be a period of weakness looking back in history.
Expectations of more volatile corporate earnings and stalled U.S.-China trade negotiations were the culprit—we did get a nice bounce mid-week as comments from two FED speakers hinted at a rate cut at next week’s July FED meeting and the markets jumped for joy. The market is pricing in a 25-basis point cut with almost certainty, but they are still giving a 50-basis point cut a 25% chance, as of this writing. That enthusiasm waned late week as other FED speakers dampened those expectations dragging stocks lower for the week but still holding onto a gain for the month of July. Despite the continued trade tensions, Asian and European markets finished higher.
On the earnings front, they have been good so far, for the most part—the banks turned in really good numbers to get things started. Companies are beating low expectations, and it is great to see companies beat expectations, but my enthusiasm is a bit muted because growth is still flat to negative.
So far, more than 15% of the S&P 500 has posted quarterly results. Of those companies, 78.5% have topped analyst expectations for earnings while 67% have reported better-than-expected quarterly revenues. What is most important to analysts is guidance and it has been a bit sketchy due in most part to uncertainty surrounding trade.
On the economic front, retail sales came in much better than expected for the month of June. Industrial production was flat and we got more disappointing data out of the housing market—starts, permits and mortgage applications were all down. The Leading economic indicators index fell 0.3% last month and you would have to go back to 2009 to find a drop of that magnitude—this is something I will be watching closely.
So, this week…it’s good to be back in the saddle after a much-needed vacation and it is going to be a busy week. 145 companies of the S&P 500 and 10 of the Dow 30 are due to report this week including so-called FANG names Facebook, Alphabet (Google) and Amazon, along with blue chips like McDonald’s and Boeing. On the economic calendar, we will get new and existing home sales, preliminary PMI figures, durable goods orders and the first read on Q2 2019 GDP = so it will be a busy week.
My next market update will come out late next week after we close the books on July, so stay tuned and we’ll keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
July 23, 2019
