Market Perspective for July 26, 2019

Equity indexes rallied to new all-time highs this week after several strong earnings reports. The Nasdaq advanced 2.26 percent, the Russell 2000 Index 2.03 percent, the S&P 500 Index 1.65 percent and the Dow Jones Industrial Average 0.14 percent.

Communication services outperformed on the week, with SPDR Communication Services (XLC) increasing 4.24 percent. Alphabet (GOOGL) returned more than 10 percent on Friday following its strong earnings report. Facebook (FB) also provided a strong report, while Twitter (TWTR) climbed 12.95 percent. Netflix (NFLX) rebounded nearly 10 percent off its lows for the week following disappointing earnings.

The financial sector delivered solid earnings with major banks and regional banks reporting. SPDR Financial (XLF) climbed 2.67 percent and SPDR S&P Regional Banking (KRE) jumped 3.83 percent. SPDR Technology (XLK) was also strong. It gained 2.34 percent.

Second quarter GDP growth was 2.1 percent, higher than many economist forecasts. The report was met with mixed reaction from economists, with personal consumption driving the increase.

Manufacturing PMIs may have slipped in Europe and the United States this month if advance PMI readings hold. Markit showed the U.S. PMI at 50.0, right on the line between expansion and contraction. Germany’s PMI fell deeper into contraction. The U.S. services PMI accelerated.

The European Central Bank responded to the weaker PMIs by signaling more rate cuts could be on the way, along with a restart of quantitative easing. The U.S. Dollar Index advanced 1.0 percent. iShares MSCI EAFE (EFA) was barely positive with a return of 0.02 percent, while iShares MSCI Emerging Markets (EEM) fell 0.40 percent.

Bond yields rebounded this week on strong economic and earnings news. The 10-year yield climbed to 2.08 percent. Crude oil was up slightly on the week to $56.20 per barrel.

McDonald’s (MCD), Coca-Cola (KO), Alphabet (GOOGL), Facebook (FB), Raytheon (RTN), Universal Health Services (UHS), Intel (INTC), Northrop Grumman (NOC), Kaiser Aluminum (KALU), Biogen (BIIB), Texas Instruments (TXN), Fifth Third Bancorp (FITB), Teradyne (TER), Visa (V), Harley-Davidson (HOG), Auto Nation (AN), Whirlpool (WHR) and Halliburton (HAL) were only a few of the hundreds of companies that beat earnings expectations. Seventy-seven percent of S&P 500 companies are beating estimates after two full weeks of earnings season. About 60 percent of the index has yet to report.

 

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