U.S. markets were choppy throughout Friday’s session following fresh comments from President Trump on tariffs and trade along with negative remarks about the Fed and interest rates.
The narrow range resulted in a lower close as the first half gains faded off the session highs.
Despite the typical and boring summer action, near-term support levels held as the Dow & S&P 500 extending their winning streak to 3-straight weeks.
The week after July option expiration that occurred on Friday can be prone to massive price swings. Volatility remains somewhat relaxed with the heart of earnings season ahead but something to keep in mind.
The Russell 2000 traded in a 9-point range before sliding 0.3% and closing below 1,700 with the morning low tapping to 1,696.
A move below 1,680 would signal a possible near-term top while continued closes back above the 1,700 level keeps all-time highs north of 1,708 in play.
The Nasdaq dipped 0.1% despite testing a first half high of 7,860 and coming within 7 points of setting a fresh all-time high. The index held 7,800 for the 7-straight session with a close below this level being a bearish signal.
For the week, the Nasdaq slipped 0.1% and the Russell 2000 rallied 0.6%.
Tech is working on a 3-session skid while the small-caps had their 3-session win streak snapped.
The Dow slipped 6 points, or 0.03%, with the opening low reaching 24,986. The blue-chips held the 25,000 level for the 6th-straight session with a move above 25,200 signaling continued momentum.
The S&P 500 was lower by 0.1% after holding 2,800 for the 5th time in 6 sessions and the intraday bottom. A move below 2,790 – or above 2,815 – could be signals for the next short-term trend.
The Dow and S&P failed to avoid their first back-to-back session losses for the month following Friday’s weakness. For the week, the Dow was up 0.2% while the S&P 500 climbed 0.1%.
Communications Staples was up 0.6%. Financials and Tech rose 0.2% and 0.03%, respectively, and were the only other sectors that showed strength.
Real Estate and Utilities fell 0.8% and 0.7% to pace sector laggards. Consumer Discretionary, Materials and Energy were down 0.4%.
For the week, Industrials and Financials were the strongest sectors after jumping 1.6% and 1.5%, respectively.
Communication Services dropped 1.4% for the week while Real Estate and Energy were off 1% and 0.9%.
Nearly 10% of the S&P 500 members have reported Q2 results with total earning up 23% on 10% higher revenues.
Total earnings for nearly half the market cap of the Finance sector that has reported already are up 20.9% on 5.8% higher revenues, with 80% beating EPS estimates and 86.7% topping revenue estimates.
Results from more than one-third of the Transportation sector’s total market cap in the S&P 500 index are already out, with 22.4% and 9.5% earnings and revenue growth and all the companies beating EPS and revenue estimates.
For the S&P 500 index as a whole, total Q2 earnings are expected to be up 20.4% from the same period last year on 8.3% higher revenues.
Tech sector earnings are expected to be up 23.5% on 11% higher revenues, which would follow 31.1% earnings growth on 13.1% revenue growth in Q1.
Finance sector earnings are expected to be up 24.2% from the same period last year on 4.1% higher revenues.
Other major sectors with strong expected growth in Q2 include Energy (136.9% earnings growth), Basic Materials (52.3%), Industrial Products (25.3%) and Retail (18.3%).
For the small-cap S&P 600 index, total Q2 earnings are expected to be up 26.1% on 8.2% higher revenues, and would follow 24.3% earnings growth on 8.6% revenue growth for Q1 2018.
For full-year 2018, total earnings for the S&P 500 index are expected to be up 20.3% on 6.3% higher revenues. For full-years 2019 and 2020, total earnings are expected to be up 9.8% and 9.7%, respectively.
Revenues for the index are expected to be increase by 4.8% in 2019, and 4.3% in 2020.
The implied ‘EPS’ for the index, calculated using current 2018 P/E of 17.6X is at $156.42.
Using the same methodology, the index ‘EPS’ works out to $171.78 for 2019 (P/E of 16X) and $188.44 for 2020 (P/E of 14.6X).
Global Economy – European markets closed lower across the board. Germany’s DAX 30 sank 1% and France’s CAC 40 fell 0.4%.
The Belgium20 and the Stoxx 600 Europe slipped 0.2% while UK’s FTSE 100 dipped 0.1%.
German June PPI rose 0.3% and 3% year-over-year, both matching expectations.
Asian markets were mostly higher despite President Trump doubling down on potentially imposing tariffs on $500 billion in Chinese goods.
China’s Shanghai surged 2% and Hong Kong’s Hang Seng jumped 0.8%. Australia’s S&P/ASX 200 rose 0.4% and South Korea’s Kospi gained 0.3%. Japan’s Nikkei declined 0.3%.
Japan June national CPI rose 0.7% year-over-year, weaker than forecasts of 0.8%. June national CPI ex-fresh food rose 0.8.%, right on expectations. June national CPI ex-fresh food & energy was up 0.2%, below estimates of 0.4%.
Baker-Hughes reported that the U.S. rig count was down 8 rigs from last week to 1,046, with oil down 5 to 858, gas rigs down 2 to 187, and miscellaneous rigs down 1 to 1.
The U.S. Rig Count is up 96 rigs from last year’s count of 950, with oil rigs up 94, gas rigs up 1, and miscellaneous rigs up 1. The U.S. Offshore Rig Count is down 2 rigs to 17 and down 6 rigs year-over-year.
Market Sentiment – St. Louis Fed James Bullard said the yield curve is a bearish signal on the economy and warned an inversion could be imminent. He again argued against pushing policy normalization to the extent that the curve inverts.
As far as tariffs, Bullard said they are a wild card into the economic outlook. He added that better trade deals with less barriers would be a good outcome for the U.S., while more protectionism would be a bad thing.
Bullard noted that the President can comment on monetary policy, but it is up to the Fed to take the best actions to achieve its dual mandate.
He said he was not surprised by Trump’s comments on the Fed and expects him to weigh in again.
He added that doesn’t change the Fed’s mandate and the structure of the Fed mitigates outside influences.
Bullard doubted that there would be any influence from Trump’s remarks and said the President was just one more voice in the currency debate. He was a little more cautious on the trade front, however, saying that if it goes badly it could be a risk for the economy.
For now, Bullard said the economy looks very good and that he takes Trump and his team at their word that they are free traders.
Fedspeak will go into hibernation this week and ahead of the the next Fed meeting set for August 1st-2nd.
The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 4th time in 5 sessions after testing a low of $120.70.
Support at $120.75-$120.50 and the 200-day moving average held with a close below $120 and the 50-day moving average signaling additional weakness.
Lowered resistance is at $121.25-$121.50.
RSI remains in a downtrend after failing June support at 50 with risk to 45-40 on continued weakness.
Resistance is at 50-55 with a move above the latter signaling renewed strength.
Market Analysis – The Spider S&P 500 ETF (SPY) was down for the 2nd-straight session following the intraday backtest to $279.50.
Upper support is at $279.50-$279 with a move below the latter signaling additional weakness towards $277.50.
January resistance is at $280-$280.50 held with a close above the latter being a bullish signal for a possible run towards $282-$282.50.
The 50/200-day moving averages remain in solid uptrends and are signaling higher highs.
RSI is in a slight downtrend with near-term support at 60-55. A close below the latter would signal additional weakness towards 50-45.
Resistance is at 65 with a move above this level signaling additional strength.
Communication Services (XLC) is the latest sector to be added to the S&P 500 and has only been trading for a month.
Friday’s low tapped $50.84 with upper support at $50.80-$50.60 holding. A close below the latter would be a slightly bearish development. Resistance is at $51-$51.20.
RSI is approaching support at 50 with a close below this level signaling additional weakness. Resistance is at 55-60.
The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 61.70% and the session low.
Current resistance is at 65%-67.50% with a close above 70% and the monthly high being a bullish signal. Support is at 60% with a close below this level signaling additional weakness.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed at 66.99%. Resistance is 67.50%-70%.
Continued closes above the latter would be a bullish signal for additional strength. Last week’s peak reached 70.87%. Support is at 65%-62.5% with a move below 60% being a slightly bearish development.
Al the best,