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Market Recap – Tech Companies Drive Stocks Higher This Week

Market Digest – Week Ending 4/24

Solid earnings from several major technology companies helped drive stocks higher. International stocks again set the pace as the Euro rose and fear over about Greece’s debt crisis receded, at least temporarily.

Weekly Returns:
S&P 500: 2,118 (+1.8%)
FTSE All-World ex-US: (+2.2%)
US 10 Year Treasury Yield: 1.91% (+0.05%)
Gold: $1,179 (-2.4%)
USD/EUR: $1.087 (+0.5%)

Major Events:
• Monday – Struggling to balance slowing growth with fears of asset bubbles, China lowered its required reserve ratio and freed up $200 billion for banks to lend.
• Tuesday – A man in London was arrested for an alleged role in the 2010 “flash crash” and charged with “spoofing”, an illegal bluffing tactic to manipulate markets.
• Wednesday – Google announced a wireless service across much of the US which will cost $20 per month. For now, it will only work with Google Nexus phones.
• Thursday – The NASDAQ composite closed at a record, surpassing its peak from 15 year ago.
• Thursday – Comcast abandons its acquisition of Time Warner amid conflict with the FCC.
• Thursday – Google, Microsoft and Amazon report strong earnings results.
• Friday – Charter Communications announced it would investigate a bid for Time Warner.

Our take:
Stocks rallied on mixed, but largely better than expected earnings. While numerous companies are citing a negative impact from a stronger dollar (notably Procter & Gamble and DuPont), the impact seems largely priced into shares. Meanwhile tech giants such as Microsoft, Google and Amazon exceeded expectations. The biggest of them all, Apple, reports after the close on Monday. Sales of the iPhone 6 will no doubt continue to be massive, but it will be interesting to see if momentum from the holiday season is enough to meet expectations – especially in the face of stronger than expected demand for the new curved screen Samsung S6. Investors will also be curious for early indications of demand for the iWatch. For those who do buy it, the Personal Capital app will be immediately available with a new budgeting feature.

With valuations higher than historical averages, corporate results so far have been interpreted as good news for those long stocks. Prices can continue to move higher with earnings growth, but it will be a stretch for valuations to expand in the face of contacting sales or profits. Not all is rosy. Overall earnings for the 201 companies in the S&P 500 which have announced are down about 2% and roughly half have missed revenue estimates.

Both the S&P and the NASDAQ closed the week at record highs. For the more diversified S&P 500, the last record was set just a couple of months ago. For the Technology and Bio-Tech heavy NASDAQ, it is a more symbolic milestone. The last high was fifteen years ago on March 10, 2000 – the official end of the bubble.

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