[MM_Member_Data name=’firstName’],

U.S. markets suffered their second worst week of the year despite Friday’s slight rebound that ended a three-session slide. The technical damage to the major indexes hit the small-caps the hardest with the Russell 2000 breaching its 200-day moving average before holding this level into the closing bell.

Meanwhile, the S&P 500 and Nasdaq failed to recover their 50-day moving averages following Thursday’s close below these levels. Sectors were mixed for the week with Energy, Basic Materials, Financials, and Industrials leading on the downside.

Consumer Staples and the Utilities were the stronger sectors.

Q2 earnings results from 448 of the S&P 500 companies are up 10.9% from the same period last year on 5.8% higher revenues. Nearly 74% of the companies have beat EPS estimates with roughly 68% clearing revenue estimates. The proportion of companies beating both EPS and revenue estimates is an above-average 54%.

Q2 results from 23 of the 42 retailers in the S&P 500 index are down 1.7% from the same period last year on 6.7% higher revenues. So far, 74% of the companies have topped EPS estimates with 78% beating revenue estimates.

Estimates for Q3 have come down, but they appear to be following the moderate revisions pace seen ahead of the start of the Q2 earnings season. For 2017, total earnings for the S&P index are expected to be up 7.5% on 4.2% higher revenues, which would follow 0.8% earnings growth on 2% higher revenues in 2016. Additionally, index earnings are expected to be up 10.9% in 2018 and 8.6% in 2019.

Global Economy –European markets posted their worst week in nine months following Friday’s drubbing. The FTSE 100 index fell 1.1% to a 3-month low while France’s CAC 40 index, the Stoxx Europe 600, and the Belgium20, all dropped 1%. The DAX 30 was basically flat after slipping a quarter-point.

Asian markets were also weak across the board on continued geopolitical tensions. Hong Kong’s Hang Seng Index sank 2% and South Korea’s Kospi index declined 1.7%.

Shanghai index gave back 1.6% while Australia’s S&P/ASX 200 tumbled 1.2%. Japan’s Nikkei Stock Average slipped 0.1%.

Hong Kong’s economy for the second quarter expanded by 3.8% and topped the 3.2% growth rate forecast. Private consumption rose 5.3% year-over-year, up from a 3.9% expansion in the first quarter. Total exports of goods reached 5.6% from year ago levels, compared with a 9.3% expansion in the previous quarter.

China’s fiscal spending slowed in July as the Chinese government spent 1.35 trillion yuan, or $202.7 billion, in its fiscal budget in July, up 5.4% from a year earlier. The rate was down from the 19.1% increase in June.

China’s car sales were up 4.3% from a year earlier, accelerating from June’s 2.3% clip, on 1.68 million cars sold. Sales for the first seven months of 2017 were up 2% from the year-earlier period.

U.S. Economy-The Consumer Price Index for the month of July rose 0.1% for both the headline and core rates. There were no revisions to June, where the headline price reading was unchanged while the core edged up 0.1%.

Philly Fed’s Livingston Survey noted a slightly slower pace of growth is projected for the U.S. economy over the next three years than it did three months ago. Growth of 2.6% is projected for the current quarter, up from 2.5% previously. A 2.3% pace for the next quarter is expected, down from 2.4% previously.

For the annual average, growth is seen unchanged at a 2.1% year-over-year clip, but it’s expected to accelerate to 2.4% year-over-year in 2018 that was revised from 2.5%. A dip back to 2.2% year-over-year is expected in 2019, revised from 2.1%. The unemployment rate is projected to fall to 4.2% in Q4, from 4.3% this quarter.

Meanwhile, CPI is seen steady at a 2.3% year-over-year pace in Q4, and slowing to 2.2% in Q1 versus the prior 2.4% estimate.

Market Sentiment –Minneapolis Fed Neel Kashkari cited weak CPI inflation data as yet another reason to hold off on rate hikes, after warning repeatedly that inflation was undershooting the Fed’s 2% target.

Dallas Fed President Robert Kaplan wants to see more evidence of inflation picking up to the 2% target before another rate hike. He said he was a strong advocate of the two rate hikes seen so far this year, but now he’s willing to be patient as he looks for progress toward the price goal.

He also cautioned that the FOMC is not as accommodative as people might think and it would be healthy for the FOMC to start winding down its balance sheet.

Fed speak for the upcoming week includes Dallas Fed Kaplan and Kashkari on Thursday. Kaplan is scheduled to make another appearance on Friday.

The iShares 20+ Year Treasury Bond ETF (TLT) tested a high of $126.46 with lower resistance at $126.50-$127 holding. A move above the latter could lead to a double-top breakout towards $128-$130. Support is at $126-$125.50 with backup help at $124.75 and the 50-day moving average.



Market Analysis-The Spiders Dow Jones Industrial Average ETF (DIA) is trying to hold the late July breakout above the $218 level and current support. There is risk to $216-$215 and the 50-day moving average on a close below $218-$217.75.

A move back above resistance at $219.50-$220 would be a bullish signal for a return to all-time highs towards $222-$224.


The Technology Select Spider (XLK) traded higher on Friday following a 3-day pullback off the recent 52-peak of $58.33. Upper support at $56.75-$56.50 and the 50-day moving average held with risk to $55.50-$55.25 and the 100-day moving average if $56 failed.

This would retrace the early July breakout above the 50-day moving average. Resistance is at $57.50-$58 with a move above the latter likely signaling a run towards $60.


The number of S&P 500 stocks trading above their 50-day moving average is just above 40% and levels last in mid-April and mid-May.

Both times, the recovery back above the 50% level came in three and two sessions, respectively. A move below 40% would signal further weakness in the index as this level has held since early November 2016.

All the best,
Roger Scott