Most of the time, the U.S. stock market looks to 3 factors to support its upward trend – let’s grade each of the factors: CONSUMER SPENDING: I grade this factor a C (neutral).
THE FED AND ITS POLICIES: I continue to grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices.
BUSINESS PROFITABILITY: I graded this factor an A (very favorable).
Investors were itching to sell stock last week, and they found just enough reasons to pull the trigger.
Nothing terrible happened in the markets or the economy, and yet stocks fell more than they have in 14 months. In fact, it wouldn’t have been that surprising if stocks had risen this week: The government released strong data on jobs and solid housing numbers. But increased fears of Fed tapering and weak reports from retailers helped spur selling momentum.
For the week the Dow fell 344.04 points, or 2.23%, to 15,081.47. The Standard & Poor’s 500 fell 35.59 points to close at 1655.83, and the Nasdaq Composite dropped 57.33 points, or 1.57%, to close at 3602.78.
Treasury notes slumped, with the 10-year yield rising 0.246 percentage point to 2.827%, its largest jump since June.
How quiet was the news cycle this week? Some of the hottest chatter came out of Paducah, Ky., population 25,024. James Bullard, president of the St. Louis Fed and a voting member of the FOMC, said in a speech there on Wednesday that he was “concerned about low inflation.” He added that he hasn’t come to a conclusion on the taper and that a reduction in bond purchases could start very slowly, if at all; stocks fell nonetheless.
The selling accelerated on Thursday, as earnings reports from Wal-Mart Stores (ticker: WMT) and Cisco Systems (CSCO) both disappointed the Street. Also on Thursday, the government said that jobless claims fell to 320,000, and the four-week average fell to its lowest level since November 2007. Apparently, investors remain in “good is bad” mode, seeing positive economic news as a harbinger for a less-accommodative Fed policy. Real estate also presented a conundrum: Housing stocks spiked on solid housing-starts numbers, but real-estate investment trusts fell. Investors are likely weighing whether they should take a risk on REITs when Treasuries are starting to offer stronger returns.
Given the improvement in the labor market, the Fed’s plan to taper bond purchases does look more certain, said Brad McMillan, chief investment officer at Commonwealth Financial Network. As the market comes to grips with the plan, the S&P could give up about 5% to 6% from its peak, as much as it did in the last taper-induced selloff, McMillan predicted. The S&P 500 is now down about 3% from the peak.
“The notion of the Fed starting to taper after the September meeting is becoming pretty well founded,” he said (Source: Barrons Online).
Most of the time, the U.S. stock market looks to 3 factors to support its upward trend – let’s grade each of the factors:
CONSUMER SPENDING: I grade this factor a C (neutral).
THE FED AND ITS POLICIES: I continue to grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices.
BUSINESS PROFITABILITY: I graded this factor an A (very favorable). 55% of companies reporting 2nd quarter earnings have beaten estimates ( the historical average is 53%).
Obviously, the bulls went to the beach last week, leaving the markets in the grip of the bears.
Wall Street turned in its worst week since late June amid extremely light trading, dropping on four of five days, as investors’ preoccupation with all that could go wrong come autumn dominated the action.
The Dow Jones Industrial Average dropped 232.85 points, or 1.5%, on the week, to close at 15,425.51, ending a six-week winning streak. The Standard & Poor’s 500 fell 18.25, ending at 1691.42. The Nasdaq lost 29.48 points, or 0.8%, finishing at 3660.11.
From concerns stoked by two Federal Reserve regional presidents suggesting that the nation’s central bank would move sooner than expected to rein in its longtime efforts to stimulate the economy, to worries about another round of possible budget cuts under the so-called sequester as fiscal year 2014 looms, to a dismal outlook for back-to-school retail sales, investors grew more uneasy with the stock market’s recent record-setting levels.
Adding to the fretfulness, August’s claim to fame among traders is that it historically has been the worst-performing month since 1987, with the weakest results occurring in its first nine trading days, according to Stock Trader’s Almanac editor-in-chief Jeffrey Hirsch. On average, the Dow has declined 1% in August, while the S&P 500 has slid 0.8%.
Despite last week’s weakness, the S&P 500 rose 0.34% in the first nine trading days of August, defying the historical seasonality and reflecting the strength underpinning the market. In the past 21 years, there have been 11 positive starts in August; all but three preceded full-month gains.
The broad market averages wobbled early in the week before rebounding slightly Thursday, getting a lift from trade data from China that suggested its economy could be stabilizing after two quarters of declining growth. The data sparked a rally in materials stocks, such as Cliff’s Natural Resources (ticker: CLF) and Newmont Mining (NEM), as China is the biggest consumer of raw materials.
How sustainable the demand from China is remains uncertain. Chinese exports jumped 2% in July from the previous month’s total, but are still well below their January 2013 peak.
By Friday, jitters set in again, and investors chose to overlook the fact that of the 446 companies in the S&P 500 that reported quarterly results, 68% exceeded expectations, slightly more than the 67% of the past four quarters, according to Thomson Reuters (Source: Barrons Online).
Most of the time, the U.S. stock market looks to 3 factors to support its upward trend – let’s grade each of the factors:
CONSUMER SPENDING: I grade this factor a C (neutral).
THE FED AND ITS POLICIES: I continue to grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices. The FED’s Open Market Committee met last week and reiterated its intent to keep a lid on interest rates (short term rates that they can control directly) for an extended period of time.
BUSINESS PROFITABILITY: I graded this factor an A (very favorable). Many companies have reported their profits to the public shareholders in the next 5 weeks. Companies exceeded expectations, on average, sufficient to maintain a grade of A.
The Goldilocks economy is back. Soft job news Friday wasn’t enough to dent another big week for equities, with the major indexes setting new highs Friday—again. The continuing excitement has come on generally “just good enough” data from the U.S. economy, from second-quarter corporate earnings, and even from the jobs arena.
In many cases, bullish data—such as Thursday’s lower jobless-benefit filings—came with ancillary figures or revisions that undercut the trend, like Friday’s weaker-than-expected hiring data. Yet the combination didn’t set off investor fears the reports would sway the Federal Reserve Board to speed up an eventual withdrawal of monetary stimulus.
In general the economic figures “were nothing great, but nothing too bad,” says Dan Morgan, a portfolio manager at Synovus Trust.
The Dow Jones Industrial Average rose almost 100 points to 15,658.36, up 0.6%, a new high and up 19.5% this year. The S&P 500 index gained 18 to finish at 1709.67, also a record high, the 25th this year. The tech heavy Nasdaq Composite index jumped 2%, or 76 points, to 3689.59.
In the way of technical indicators, the market shows strong underpinnings: The number of stocks making new 52-week highs remains firm, those over their 50-day moving average hover around 80%, and breadth is strong.
It does seem as if the Goldilocks economy is back, says Stephen Massocca, a managing director at Wedbush Equity Management. Older readers remember that the 1995-1996 stock rally came amid U.S. domestic-product growth that was neither too fast to set off inflation fears nor too slow to ignite earnings-growth worry. “It’s a bumbling, stumbling recovery,” Massocca says of today’s U.S. economy. Investors are again wrestling with whether they want a stronger economy or not. Slower growth means the Fed’s punch bowl remains available but that corporate earnings increases, now a tepid 4%, could ease even more. Faster economic expansion would help profits—and therefore stocks—but investors fear the early withdrawal of central-bank stimulus, a big propellant of this year’s hefty gains (Source: Barrons Online).
Most of the time, the U.S. stock market looks to 3 factors to support its upward trend – let’s grade each of the factors:
CONSUMER SPENDING: I grade this factor a C (neutral).
THE FED AND ITS POLICIES: I continue to grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices. The FED’s Open Market Committee meets this week. The stock and bond markets will watch the meeting’s press release very closely for the timing of future interest rate increases.
BUSINESS PROFITABILITY: I graded this factor an A (very favorable). Many companies will be reporting their profits to the public shareholders in the next 3 weeks – companies reporting their earnings last week exceeded expectations, on average. We will continue to monitor this very closely for the next 3 weeks.
The stock market finished little changed last week on a dearth of directional news other than earnings reports. Technology stocks rose, but investors mainly marked time in anticipation of next week, which is laden with potentially market-moving news: A Federal Open Market Committee (FOMC) meeting, the release of second-quarter gross domestic product (GDP) figures, and July nonfarm payroll data.
There were plenty of second-quarter earnings results last week, some good and some less so, but none moved the broad market. In general, says Kate Warne, investment strategist at Edward Jones, S&P 500 company earnings “came in at a reasonable rate…nothing so good to drive the market higher, and nothing so worrisome to change the view that it is a solid but unspectacular second quarter.”
According to Zacks Investment Research, for the 240 S&P 500 companies that reported results as of Thursday, earnings are up 4.1% and revenue 3.8%.
The Dow Jones Industrial Average staged a 150-point intraday comeback Friday, finishing at 15,558.83, up 0.1% on the week, and inches from an all-time high set last Monday. It’s up 18.6% this year. The Standard & Poor’s 500 index, however, fell marginally, down less than a point, to 1691.65. The tech-heavy Nasdaq Composite index bucked the tide and rose 26 points, or 0.7%, to 3613.16.
Next week’s data could go a long way in determining what the market does in August, when many participants are on vacation.
So far the market has generally seemed relieved at the pace of earnings, Warne says, adding that next week’s data and FOMC meeting have the potential to set up a weak August. She’s expecting second-quarter GDP to show “a little less than 1% growth.” That, combined with a possible revision of first-quarter GDP to less than 2%, suggests investor sentiment about the U.S. economy could turn gloomy quickly. Throw in a Fed potentially talking up a tapering of its bond buying, and it isn’t a particularly auspicious backdrop for stock prices during a typically quiet month like August.
“We are vulnerable to a meaningful decline,” concurs Jeffrey Saut, chief investment strategist for Raymond James. It’s a traditionally weak point in the calendar, and he thinks there could be a short-term 10% or so decline in the period leading up to mid-August. “You’ve got the second-in-command on the trading desk and the orders left are: ‘Don’t be a hero. Follow the market’s lead, whether it sells or buys,’ ” Saut says (Source: Barrons Online).
Most of the time, the U.S. stock market looks to 3 factors to support its upward trend – let’s grade each of the factors:
CONSUMER SPENDING: I grade this factor a C (neutral).
THE FED AND ITS POLICIES: I continue to grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices. FED Chairman Bernanke appeared this week in front of Congress to testify the economic conditions were still not strong enough to cease the current favorable policy.
BUSINESS PROFITABILITY: I graded this factor an A (very favorable). Many companies will be reporting their profits to the public shareholders in the next 3 weeks – companies reporting their earnings last week exceeded expectations, on average. We will continue to monitor this very closely for the next 3 weeks.
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).