[MM_Member_Data name=’firstName’],
U.S. markets opened lower on Friday and spent most of the morning trying to gain traction. The Dow was the only index to make it into positive territory in the afternoon while notching a new all-time high and closing the week 1% higher.
The Nasdaq, S&P 500, and Russell 2000 managed to pare their losses but ended the week slightly lower. The indexes held up well during the heaviest reporting week of the second quarter earnings season, but this week will be just as hectic with a number of marquee companies reporting.
Earnings Outlook-With results from 171 S&P 500 members already out, total earnings are up +8.8% from the same period last year on +3.4% higher revenues, with 78.9% beating EPS estimates and 70.8% beating revenue estimates.
For Q2 as a whole, combining the actual results with estimates for the still-to-come companies, total earnings are expected to be up +8.7% from the same period last year on +4.7% higher revenues. This would be coming after +13.3% earnings growth on +7% higher revenues in Q1.
Beyond Q2, total earnings for the S&P 500 index are currently expected to grow by +4.6% on +4.1% higher revenues in the September quarter and +8.6% on +5% higher revenues in Q4.
Estimates for the September quarter have started coming down, but they appear to be following the moderate revisions pace seen ahead of the start of the Q2 earnings season, at least at this stage.
For full-year 2017, total earnings for the index are expected to be up +7.7% on +4.0% higher revenues, which would follow +0.7% earnings growth on +2% higher revenues in 2016. Index earnings are expected to be up +11.4% in 2018 and +8.9% in 2019.
Global Economy –European markets closed lower on Friday with financial stocks leading the pullback and the oil and gas sector showing some strength. The Stoxx Europe 600 fell 1% to end the week down 0.5%. The FTSE 100 index also dropped 1% while France’s CAC 40 index gave back 1.1%. Germany’s DAX 30 declined 0.4%.
U.K’s consumer confidence slipped 2 points following a five-point drop the previous month, and came in at -12.
France’s Consumer Price Index rose 0.7% on year in July, the same rate as June and matched expectations.
Germany’s Consumer Prices rose by 0.4% in July and 1.5% for the year. Forecasts were at 0.3% for the month and 1.4% for the year.
Asian markets traded mostly in the red with South Korea’s Kospi index taking the biggest hit, sinking 1.7%. Australia’s S&P/ASX 200 tumbled 1.4% while Hong Kong’s Hang Seng Index fell 0.6%. Japan’s Nikkei Stock Average declined 0.6% and China’s Shanghai index gained 0.1%.
Japan’s Consumer Price Index rose 0.4% in June rose 0.4% from a year earlier, matching the pace of the previous month and in line with expectations
Also in Japan, Household Spending rose for the first time in 16 months, gaining 2.3% from a year earlier in June, and much better than a 0.5% rise that was forecasted.
Japan’s unemployment rate also improved, falling to 2.8% in June from 3.1% in the previous month. Another very interesting indicator showed tightness in the labor market as there were 151 jobs available for every 100 job seekers, the strongest showing in more than 43 years.
U.S. Economy-U.S. GDP grew 2.6% in Q2 after a 1.2% Q1 gain (revised down from 1.4%) and 1.8% in Q4 (revised down from 2.1%).
Q2 ECI rose 0.5% after the 0.8% gain in Q1.
Consumer Sentiment Index at 93.4 compared to a forecast of 93.1 for July.
Market Sentiment –Fed President Neel Kashkari wants to slowly shrink the balance sheet over the next several years as he noted in his town hall comments on Friday. The big balance sheet hasn’t done a lot to boost the recovery. He went on to say the job market remains strong, while there was very little sign of the inflation pick-up that had been expected to follow. Indeed, inflation has been low year after year, he added.
As to last Wednesday’s FOMC, he said that analysts decided not do anything with interest rates, as they likely wanted to wait to see more data.
The iShares 20+ Year Treasury Bond ETF (TLT) rebounded to trade a penny shy of the $124 level. Upper resistance at $123.50-$124 held with further hurdles at $124.50 and a rising 50-day moving average. Support remains at $123-$122.50 and the 100-day moving average.
Market Analysis-The iShares Russell 2000 ETF (IWM) traded lower for the third-straight session after peaking at all-time highs above the $144 level. Current support is at $141.50-$141 with Friday’s low tapping $141.47.
A move below the latter could lead to a continued backtest to $140 and the 50-day moving average that remains in a strong uptrend. Current resistance is at $142-$142.50. A move back above $143 will likely lead to another run at record highs.
The Spider S&P Retail XRT (ETF) made a nice recovery last week after clearing both the 50/100-day moving averages. Current resistance is at $41.50 with Friday’s high reaching $41.36.
Continued closes above this level would be a bullish development for a possible push towards $42-$42.50 and the 200-day moving average. Support is at $41-$40.75.
The number of Nasdaq 100 stocks trading above the 50-day moving average dropped below the 60% level after testing 55% on back-to-back sessions to close out the week. This represents a crucial level of support as there is risk to 50%-45% on a continued Tech pullback.
Last week, we talked about this number reaching 74.76% in back-to-back sessions and that it may have represented a near-term double-top along with a short-term market top. There was some sector rotation out of Tech last week and it will be important to see if it continues this week.
All the best,
Roger Scott