Stock prices climbed to another record close last week, fueled mainly by reassuring monetary policy talk from the Federal Reserve Chairman Ben Bernanke. Strong money-center bank quarterly earnings reports lent a hand.
Weaker than expected results from big technology names like Google (ticker: GOOG) and Microsoft (MSFT) weren’t enough to stop the bull last week. Breadth, the ratio of advancing stocks to retreating stocks, continues to be strong and is suggestive of more gains ahead.
Even as we head into the thick of the earnings season over the next two to three weeks, investors are likely to remain focused on more macroeconomic issues, such as global interest rates and the health of China’s economy, says one firm’s chief market strategist.
On the week, the Dow closed at 15,543.74, up 79 points, or 0.5%, and a few points below the record high set Thursday. The S&P 500 index did set a new record, 1,692.09, or 12 points last week. The technology-heavy Nasdaq Composite index fell 13 points, or 0.35%, to 3587.61. This bull market is 1593 days old and—according to the traditional definition of a bull market, a 20% or more gain without a 20% decline—now is the fifth longest in history, according to Bespoke Investment Group.
Bernanke told Congress Thursday that it was “too early to make judgment” on whether the central bank can begin to withdraw its monetary stimulus. That appeared to appease those worried about higher interest rates.
Though still in the early stages of the earnings period, it’s already shaping up as a repeat of the last couple of quarters: soft revenue and modest earnings growth, some winners and some losers, says the chief market strategist. “With the market still focused on the macro,” he adds, “and no Fed comments expected ahead of its next meeting July 30 and 31,” volatility will probably be low for the next couple of weeks.
Breadth shows no sign of retreat. Advances have outnumbered declining stocks for 14 of the last 17 days, a surge that has led to durable market advances in the past, according to a report from Wellington Shields.
Among financials, Morgan Stanley’s (MS) results beat analyst estimates and its stock rose 6%. Meanwhile, Google’s second-quarter profit grew 16% but missed expectations, and the stock fell 3% on the week to $896.60. Microsoft dropped 12%, to $31.40, after its results fell short and included a $900 million charge for its struggling Surface tablet computer.
One source of the market’s strength is ETF money flow, according to Nicolas Colas, chief market strategist at Convergex. In the first 12 trading days of July, investors have added $24.4 billion to U.S. equity ETFs, four times the run rate in the first half. “There’s real money going to work here,” he adds ( Source: Barrons Online).