- Major equity market indices all advance
- Rotation over the last month into defensive sectors
- Another strong quarter of earnings (Q2) about to begin
- Yield curve is flattening once again
In the abbreviated trading week all three major domestic indices advanced. The NASDAQ lead the way with a gain of 2.37%, the S&P 500 advanced 1.52%, and the Dow Jones Industrial Average was up .76% for the week. The Dow’s performance was actually pretty good given the tariff situation. Health Care and Technology were the best performing sectors both up in excess of 2.50% on the week. Utilities and Telecom sectors also posted strong gains.
While Technology and Consumer Discretionary sectors have lead the market this year it is important to note that over the last month or so money has been rotating into the more defensive sectors. Utilities, Consumer Staples, Real Estate, Telecom, and Health Care have bested the other sectors. Technology issues have actually declined close to 2% in spite of last week’s rally, and Consumer Discretionary stocks are only slightly positive. The reversal can be attributed in part to the market’s current obsession with trade wars and tariffs.
S&P 500 earnings for the second quarter will begin to be reported next week. Another strong quarter is anticipated with earnings anticipated to be up 19% over the same period last year. This will be less than the 20%+ showing in Q1 but by any account outstanding. The Energy, Materials, and Technology sectors are anticipated to post the highest earnings growth. Given, expectations are fairly high for Q2 results, investors will devote a lot of time to managements’ forward guidance and any discussion on the impact of tariffs on future results.
The yield on the 10-year Treasury bond continues to decline and consequently the yield curve has been flattening once again. This could become a larger concern as the Federal Reserve has signaled two more rate hikes before year end. As of late last week, the spread between the 2-year and 10-year Treasury bonds stood at 29 basis points (.29%). In other words, an investor only picks up .29% by buying a 10-year Treasury bond versus buying a 2-year Treasury bond. Why bother?
The yield on the 10-year Treasury bond declined marginally for the week – again impacted by tariff and trade war talk.
On the economic calendar for next week: Producer Prices are reported Wednesday by the Bureau of Labor Statistics which also reports consumer price index data on Thursday. On Friday the preliminary reading of consumer sentiment for July is released by the University of Michigan.
Q2 earnings season officially commences Friday with numerous banks reporting results:
Tuesday – Pepsi
Wednesday – Fastenal
Friday – JP Morgan, PNC Financial Services, First Republic Bank, Wells Fargo, and Citigroup
Indices for the week and YTD are as follows:
S & P 500 up 1.52% for the week; YTD index return is 3.22%
NASDAQ Composite up 2.37% for the week; YTD index return is 11.37%
Dow Jones Industrial Average up .76% for the week; YTD index return is -1.06%
Benchmark 10-year Treasury bond yield stands at 2.82% - down slightly yet again.
