- Domestic equity market returns mixed on the week.
- Bond yields inch up
- Strong initial Q2 GDP numbers released
For the second week in a row both the S&P 500 and the Dow Jones Industrial Average turned in positive results while the tech heavy NADAQ declined. The Dow was up over 1.5% for the week; the S&P 500 over .5%, and the NASDAQ declined just over 1%. The easing of trade tensions may have helped money flow into some of the more cyclical sectors like Industrials and Materials.
Facebook’s earnings results – slowing subscriber growth and less optimistic guidance – renewed concerns over the dominance of a handful of technology stocks driving market performance. Financial issues have also posted a strong month which has hurt the NASDAQ’s performance on a relative basis (compared to the S&P 500 and Dow) as of late. That said, the Technology and Consumer Discretionary (heavily influenced by Amazon) sectors have dominated performance for both the last 3 months and year-to-date.
Very good initial GDP growth was reported for Q2 with real growth coming in at 4.1%. First quarter GDP growth was revised upward to 2.2%. Critics argue that the quality of the Q2 numbers lack. As we point out in the newsletter about to go out to clients, GDP for the full year should run around 3%. This is significant as economic growth has been lackluster within a historic context since the Great Recession averaging just 2.2% annually. Between corporate earnings and economic growth, one would think the domestic equity markets would be doing better than the mid-single digit year-to-date returns.
The FOMC announces changes to short term interest rates Thursday and no change is anticipated. As of now the consensus expectations continue to be near certainty of another .25% hike in September and a further increase of .25% in December being assigned a 70% probability. Q2 GDP numbers and indications of a pick-up in inflation suggest two hikes before year end is in the cards.
On the economic calendar for next week: The Conference Board reports its Consumer Confidence Index for July on Tuesday. The Institute of Supply Management releases its manufacturing index on Wednesday. Unemployment data is reported by the Bureau of Labor Statistics on Friday. Consensus estimates are for an unemployment rate of 3.9% and nonfarm payrolls growth of 182,000. Average hourly earnings are anticipated to rise 2.7% on a year-over-year basis.
Q2 earnings season intensifies further, among companies reporting are:
Monday – Lowe’s, Denny’s, Diamond Offshore Drilling, and Affiliated Managers Group
Tuesday – Apple, Honda, P&G, Sanofi, Pfizer, Ralph Lauren, Vulcan Materials, and Samsung Electronics
Wednesday – Caesar’s, Hyatt, Oneok, AutoNation, Pitney Bowes, Anadarko Petroleum, and Chesapeake Energy
Thursday – Volkswagen, Barclay’s, Wayfair, Yum! Brands, Cigna, U.S. Steel, Avon, MetLife, and Kellogg
Friday – Allianz, AIG, Enbridge, Toyota Motor, Kraft Heinz, and Regency Centers
Indices for the week and YTD are as follows:
S & P 500 up .61%% for the week; YTD index return is 5.43%
NASDAQ Composite down 1.06% for the week; YTD index return is 12.08%
Dow Jones Industrial Average up 1.57% for the week; YTD index return is 2.96%
Benchmark 10-year Treasury bond yield stands at 2.96% - up 7 basis points on the week