Earnings in Full Swing; US Stocks Flat

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Market Digest – Week Ending 7/25

It was a mixed news week, and markets reacted accordingly with US and foreign developed stocks mostly flat. Earnings season is in full swing, and despite mostly positive results, some high-profile disappointments erased earlier gains. Even the bond market hit pause with the 10-year Treasury rate holding steady with last Friday. Gold was slightly down. In contrast, Emerging Markets had a great week, rising over one percent.

Weekly Returns:

S&P 500: 1,978 (+0.0%)
FTSE All-World ex-US: (+0.3%)
US 10 Year Treasury Yield: 2.47% (-0.01%)
Gold: $1,308 (-0.2%)
USD/EUR: $1.343 (-0.7%)

Major Events:   

  • Tuesday – A Department of Labor report showed US inflation remained benign. The headline consumer-price index increased 2.1% year over year in June, but excluding food and energy the rate fell slightly from May.
  • Wednesday – Apple, Delta, and Microsoft all reported better than expected second quarter results.
  • Thursday – Shares of Facebook rallied on strong sales, helping push the S&P 500 to another record high.
  • Thursday – US new home sales came in worse than expected, falling 8.1% from the prior month.
  • Friday – Visa and Amazon both reported disappointing earnings, driving markets lower.

Our take:

It’s tough to draw any significant conclusions from this week’s news. Some high profile companies reported earnings, with Apple and Facebook besting expectations and Visa and Amazon falling short. Inflation data was benign, helping ease expectations of sooner than expected rate hikes. Existing home sales climbed for a third straight month, while new home sales fell sharply.

This is the way it goes. Earnings and economic data are never perfect—there will always be bumps in the road. The key is to take a step back and put things in perspective. While the pace is not astronomical, corporate earnings continue to grow. In fact, almost 80% of companies in the S&P 500 have beat expectations (out of those that reported earnings).

New home sales appear to be taking a pause. This bears watching since residential fixed investment is a major contributor to GDP. But the housing recovery’s rapid pace will be difficult to sustain over the long-term. Growth will need to come from other areas. On the surface, Friday’s better than expected durable goods report suggested businesses could pick up some of the slack, but core figures remained mixed.

Next week’s GDP figures will provide additional insight, but they should be viewed with a cautious eye. Preliminary estimates can be extremely volatile.

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Brendan Erne, CFA
Brendan Erne serves as the Portfolio Management Team Leader with Personal Capital Advisors. He has over 15 years of industry experience, spanning almost all levels of the investment process, including several years at Fisher Investments as an equity analyst covering the Technology and Telecommunications sectors. He also co-managed a large cap growth portfolio and co-authored Fisher Investments on Technology, published by John Wiley & Sons. Brendan is a CFA charterholder.

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