We began last week’s recap with this chart regarding the percent of stocks in the NASDAQ over their 50 day moving average – it was at 42%. Fast forward a week and the number is 42% again – despite a 1% gain for the week in the index. So a bit of a divergence here; mega stocks like Apple – the first trillion dollar company in the U.S., are masking some weakness below the surface.
Monday thru Wednesday were essentially a wash on the indexes but the good vibes of Apple helped indexes Wednesday thru Friday (stocks initially had gapped down quite sharply Wednesday pre market). While the employment data was not great, within the scope of the larger picture the trend is still solid and these things tend to get revised a few months out anyhow.
I’ve mentioned one company twice already in the first two paragraphs so unless you’ve been living under a financial rock this was the rock star of the week:
The Federal Reserve met this week and as expected – nothing of note came to light. Markets are pricing in about a 90% probability of another rate hike in September and a 70% chance of another in December. The Fed upgraded its view of the economy to “strong” from “solid”.
The Fed kept its main interest rate unchanged at 1.75% to 2%, as widely expected, and indicated that it is likely to raise rates next month as the economy remains strong. Markets have penciled in two further rate increases for this year, in September and December.
“The FOMC expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the committee’s symmetric 2% objective over the medium term,” the Fed said.
According to Kent Engelke, chief economic strategist Capitol Securities Management Inc., that is only the second time this century that the central bank has referred to the economy as strong. “The only other time since 2000 that the Fed has described economic growth as strong in its policy statement was May 2006, just after the GDP posted a 5.4% annualized increase,” he said.
Your weekly TRADE WARS ™!!! update:
Tuesday it was reported China and the U.S. were holding talk but the end result was that the countries made little progress . Wednesday, the White House announced a proposal to raise tariffs on $200 billion worth of Chinese products to 25% from the previously announced 10%. Friday, China threatened to retaliate with tariffs on $60 billion in U.S. goods,
Chinese markets continue to dislike this news a lot more than ours.
On the economic front, Tuesday brought news consumer spending rose 0.4% in June. Analysts had been expecting a 0.5% increase. ISM Manufacturing came in at 58.1 Wednesday vs expectations of 59.5 – still a very strong reading (anything over 50 marks expansion). ISM non manufacturing fell to 55.7.
The monthly employment data for July showed a gain of 157,000 jobs, and the unemployment rate falling to 3.9%. Expectations were for 195,000 jobs added. The annualized rate of wage gains was unchanged at 2.7%.
According to data from JPMorgan, with more than 60% of the market having reported, 86% of companies in the S&P 500 have topped profit expectations, the highest such ratio in its data, which goes back to 2009. Nearly 75% of companies have beaten revenue expectations.
For the week the S&P 500 gained 0.8% while the NASDAQ added 1%.
Here is the 5 day weekly “intraday” chart of the S&P 500 … via Jill Mislinski.
The week ahead…
We’ve just come off an action packed week – trade wars, Fed, employment data, major amount of earnings reports. That is going to narrow down to earnings report (but less of them) and MORE TRADE WARS.
Next piece of fun news: 14 trading days to go until this S&P 500 bull market becomes the longest of all-time at 3,543 days.
Short term: The S&P 500 is holding its breakout – watch that level just below 2800 if there is any selling. Apple is a massive component of the NASDAQ and helped out this week quite a bit.
We mentioned this double top in the Russell 2000 a few weeks ago – it continues to hold; another sign of divergence.
The NYSE McClellan Oscillator stayed in the red for a third week so those with a shorter term outlook should be more cautious for now.
Long term: Still very positive for the “buy and never sell” crowd.
Charts of interest / Big Movers:
Tuesday, Lumber Liquidators (LL) sank 21% after it reported a surprise second-quarter loss, though revenue was ahead of expectations.
Shopify (SHOP) fell 6.7% despite reporting second-quarter earnings that beat expectations.
Wednesday, Pandora (P) spiked 15% a day after it reported second-quarter earnings and revenue that beat expectations. It had fallen sharply just ahead of it’s report!
Thursday, Tesla (TSLA) jumped 16% a day after the electric-car maker reported quarter revenue that was stronger than expected. The company, shares of which have been extremely volatile throughout 2018, also said it expects to be profitable and cash-flow positive in the second half of the year.
TripAdvisor (TRIP) tumbled 11.2% after it reported revenue that came in below expectations.
Blue Apron Holdings (APRN) reported a second-quarter loss that narrowed from the previous year and revenue that fell 25%. The stock plunged 24%, bringing its year-to-date decline to 51%.
Red Robin Gourmet Burgers (RRGB) tumbled 19.3% Thursday, a day after it gave a weak preliminary second-quarter report.
Friday, Dish Network (DISH) jumped nearly 15% after the satellite pay-TV service reported better-than-expected second-quarter earnings and revenue.
Have a great week and we’ll see you back here Sunday!