Month: July 2018

FANG stocks pulled the technology and consumer discretionary sectors and the broader market lower on Monday. Facebook (FB) fell 2.19 percent on the day, Amazon (AMZN) 2.06 percent, and Netflix (NFLX) 5.71 percent. Financials, materials, and energy were positive for most of the day, while healthcare and consumer staples held up well. SPDR Technology (XLK) declined 1.53 percent on the day and SPDR Consumer Discretionary (XLY) slid 0.78 percent. SPDR Financials (XLF) rose 0.04 percent.

The Federal Reserve’s policy statement is due out on Wednesday. The odds of a fourth rate hike at the December meeting has hit 70 percent, benefiting the financial sector.

The Bank of Japan will issue its policy statement on Tuesday. For the third time in the past week, the BoJ offered to buy unlimited Japanese government bonds to stabilize interest rates. Long-term yields have risen in anticipation of a BoJ policy shift. Analysts forecast the Bank of England will hike interest rates by 25 basis points.

Pending home sales rose 0.9 percent in June, beating expectations. The Conference Board will release its consumer confidence index for July. Analysts see it rising from June. The PMIs for various nations will also be out this week. The U.S. should remain relatively strong. Markets are likely to focus on Europe and China, two regions that have seen a slowdown in recent months.

Auto sales for July will be out on Wednesday. The consensus is looking for 17.1 million annualized, down from June’s surprisingly high 17.5 million annualized pace. Friday will bring the unemployment report for July. Economists predict 193,000 new jobs were created last month with the unemployment rate falling back to 3.9 percent.

Crude oil climbed above $70 a barrel on Monday. The U.S. Dollar Index weakened against the euro and emerging-market currencies.

Earnings kicked off with a beat by Caterpillar (CAT). Shares gained on the day. There are 144 other S&P 500 companies reporting this week, including Apple (AAPL), Pfizer (PFE) and Proctor & Gamble (PG). Baidu (BIDU), Illumina (ILMN), Simon Property Group (SPG), Tesla (TSLA), T-Mobile US (TMUS), MetLife (MET), Express Scripts (ESRX), Prudential Financial (PRU), DowDuPong (DWDP), EOG Resources (EOG), Aetna (AET), Kraft Heinz (KHC) and Enbridge (ENB) will also report.

The now $20-trillion U.S. economy grew at a 4.1-percent annualized pace in the second quarter, in line with forecasts. Personal consumption rose 4 percent.

Exports were responsible for 1 percentage point, or roughly 25 percent of growth. Economists believe this boost was temporary, caused by foreign importers rushing to buy ahead of tariffs. Third-quarter GDP may be in the 3 percent range if this is the case.

Nominal GDP increased by 7.4 percent, up 3.1 percent from the first quarter, and was largely overlooked by the press, but represents an important data point.  If interest rates remain low and nominal growth remains high, the total U.S. government debt outstanding will fall as a percentage of GDP.

Flash manufacturing PMIs for July showed a steady rate of expansion. Existing home sales hit forecasts at 5.38 million (annualized). New home sales missed estimates at an annualized pace of 631,000, in the mid-range of the expansion trend that started in 2010. Initial claims for unemployment were 217,000.

Earnings season was positive this week but featured high-profile misses. Facebook (FB) and Twitter (TWTR) both fell more than 10 percent after reporting slower user growth. Netflix (NFLX) shares are still down about 10 percent after reporting slowed subscriber growth two weeks ago.

There also was a significant rotation out of growth and into value shares this week. Financials, industrials and energy were the week’s strongest sectors. Airlines extended the transportation sector’s rise. Boeing (BA) and Caterpillar (CAT) both rallied on the week. J.P. Morgan (JPM), Bank of America (BAC) and Citigroup (C) also outperformed. The Dow Jones Industrial Average more than doubled the return of the S&P 500 Index on the week, while the Nasdaq and Russell 2000 both pulled backed from recent highs.

The U.S. dollar rallied this week after the European Central Bank reported rate hikes aren’t likely until after the summer of 2019. The spread between U.S. and German 10-year government bonds approached 30-year highs. Emerging markets outperformed as well. The Chinese government announced a small stimulus plan and measures designed to increase banks’ lending capacity. The news bolstered Chinese stocks but sent the yuan to a new 52-week low.

Equities moved higher on Monday with interest rates after Barclays hiked its second-quarter GDP growth estimate to 5.3 percent. The 10-year Treasury yield saw its largest one-day gain since mid-May.

This week will be light on economic data, but not on impact. Friday will bring the first estimate of second-quarter GDP. The Atlanta Federal Reserve will provide and update Thursday. It currently forecasts 4.5 percent growth. The economist consensus is at 4.3 percent. The New York Fed’s Nowcast model lowered its estimate last Friday to 2.69 percent. It’s highest forecast for this quarter was 3.26 percent on June 1.

Long-term bonds fell on Monday as economic forecasts were raised. iShares Barclays 20+ Year Treasury (TLT) declined 1.18 percent on the day.

Bank stocks followed interest rates higher. SPDR S&P Regional Banking (KRE) climbed 1.30 percent. SPDR Financial (XLF) rose 1.20 percent, by far the best performer. SPDR Technology (XLF) gained 0.51 percent.

Existing home sales increased at an annualized pace of 5.38 million in June, meeting forecasts. New home sales for June will be out on Wednesday. The flash PMIs for July will be out on Tuesday. Thursday will see durable goods and capital equipment orders for June. The University of Michigan’s consumer sentiment survey will be out on Friday.

The U.S. Dollar Index rallied on Monday, trading 1 percent below its 52-week high. The index has traded in a tight range of about 1.5 percent over the past two months. The dollar gained versus the euro and some emerging markets on Monday, while it weakened versus the yen.

Earnings season is in full swing this week. Companies that are scheduled to report this week combine for over $1 trillion in market capitalization. Overall, 35 percent of the S&P 500 Index will deliver earnings this week. The current rate of blended growth (reported earnings plus outstanding estimates) is 20.8 percent.

Google (GOOGL), Illinois Tool Works (ITW), Philips (PHG), Haliburton (HAL), TD Ameritrade (AMTD), Ryanair (RYAAY), AT&T (T) Verizon (VZ), 3M (MMM), Texas Instruments (TXN), United Technologies (UTX), Eli Lilly (LLY), Lockheed Martin (LMT), Biogen (BIIB) and Sherwin-Williams (SHW) are among the big names reporting in the first half of the week.

Later in the week we’ll hear from Facebook (FB), Visa (V), Boeing (BA), Coca-Cola (KO), PayPal (PYPL), GlaxoSmithKline (GSK), Gilead Sciences (GILD), United Parcel Service (UPS), Qualcomm (QCOM), Amazon (AMZN), Intel (INTC), Mastercard (MA), Royal Dutch Shell (RDS.A) Anheuser-Busch (BUD), Amgen (AMGN), McDonald’s (MCD), Altria (MO), Exxon Mobil (XOM), Chevron (CVX), Merck (MRK) and Abbvie (ABBV).