The domestic equity markets spent a considerable amount of time last week going nowhere. All three major indices were for all intents and purposes flat. The only bright spot was that financial stocks finally led all sectors advancing over 1% on the week. Overall, the financials that have reported have exceeded earnings estimates and forward guidance has been decent. Loan growth for the banks could be stronger and the interest rate environment could be more constructive. Energy stocks were the worst performers declining almost 2% as the sector continues to be among the most volatile. Telecommunication issues had yet another poor showing.
The week was dominated by news flow and earnings. Earnings as expected have been pretty good. Just under 20% of S&P 500 companies have reported and close to 90% have beat estimates (low 70% beat rate is the norm). Earnings growth has been in the 20% range which is superior; forward earnings guidance has been good. Revenue upside surprises by companies reporting has been more in line with historic norms. Earnings growth is being driven primarily through margin expansion. Currently, the S&P 500 continues to have a forward price earnings multiple of around 16X (a bit high – not extreme). In a nutshell Q2 earnings are impressive.
Frankly, it would be difficult to script the current abundance of news flow impacting the capital markets. Among the litany – Trump/Putin, Trump/NATO, Trump/Fed, Trump/Cohen, Trump/currency manipulation, Trump/China, Trump/tariffs, and Trump/trade war. The babble creates uncertainty about the future which markets abhor.
Market fundamentals continue to be positive in aggregate; news flow negative. Consequently, the broad domestic equity markets struggle with the exception of the NASDAQ (technology in particular) and small cap stocks. While yields moved slightly higher this week the uncertainty created by headlines are a headwind for interest rates.
On the economic calendar for next week: existing home sales data is reported Monday by the National Association of Realtors. New home sales data is released Wednesday by the Census Bureau. Thursday durable goods orders are reported. On Friday the first estimate at Q2 GDP is provided by the Bureau of Economic Analysis.
Q2 earnings season continues in full force, companies reporting results include:
Monday – Haliburton, Illinois Tool Works, and Alphabet
Tuesday – UBS, Biogen, Verizon, 3M, Lilly, Lockheed Martin, AT&T, and JetBlue
Wednesday – Facebook, Boston Scientific, Coca-Cola, Ameriprise, GM, Boeing, and Northup Grumman
Thursday – Amazon.com, Astra-Zeneca, McKesson, Nestle, Xerox, Under Armour, Mastercard, Altria, and Newmont Mining
Friday – L’Oréal, Merck, Twitter, AbbVie, Exxon, Weyerhaeuser, and Colgate-Palmolive
Indices for the week and YTD are as follows:
S & P 500 up .02% for the week; YTD index return is 4.80%
NASDAQ Composite down .07% for the week; YTD index return is 13.28%
Dow Jones Industrial Average up 15% for the week; YTD index return is 1.37%
Benchmark 10-year Treasury bond yield stands at 2.89% - up 6 basis points