How will the market respond
to this week’s Fed announcement?
Markets closed mixed this
week as stocks experienced a period of lackluster trading. While the Dow and
Nasdaq indexes eked out gains, the S&P 500 notched its first loss in five
weeks, driven lower by some earnings misses. For the week, the S&P 500 lost
0.03%, the Dow gained 0.1%, and the Nasdaq gained 0.71%.[i]
Markets have had a good run
near historic highs, so it’s not surprising to endure a slow week halfway
through earnings season. Thus far, more than 50% of S&P 500 companies have
reported in, with 68% beating earnings expectations, above the historical rate
of 63%, and 56% topping revenue estimates. If remaining earnings reports are in
line with estimates, earnings will be up 4.1% from second quarter 2012; one
year ago.[ii]
Overall, revenue growth seems to be below historical trends as businesses
continue to struggle with weak global demand.
On the economic front,
consumer confidence soared to its highest level in six years, which could point
towards higher consumer spending during the important back-to-school retail
season.[iii]
Jobless claims rose last week, largely due to factoring retooling and seasonal
variations, but it appears that the labor market is stable, if not gaining
momentum. On the positive side, several automakers have altered their annual
shutdown schedule in response to increased vehicle demand, so we will hopefully
see a few more factory jobs show up in next month’s data.[iv]
Looking
ahead, analysts will be closely monitoring the economic data released this
week, which includes reports on consumer confidence, GDP, as well as the July
Fed FOMC meeting announcement. Economists don’t expect much to change at the
FOMC meeting, but analysts will still pore over every word of the announcement
for insight into future Fed moves.
As
always, in times good or bad, exciting or dull, we are ever watchful – always
keeping an eye on the assets you have entrusted to our care. Thank you for
giving us the opportunity to provide you with financial guidance. We hope you
have a great week!
ECONOMIC CALENDAR:
Monday: Pending Home Sales Index, Dallas Fed Mfg. Survey
Tuesday: S&P Case-Shiller HPI, Consumer
Confidence
Wednesday: ADP Employment Report, GDP, Employment
Cost Index, Chicago PMI, EIA Petroleum Status Report, FOMC Meeting Announcement
Thursday: Motor Vehicle Sales, Jobless Claims, PMI
Manufacturing Index, ISM Mfg. Index, Construction Spending
Friday: Employment Situation, Personal Income
and Outlays, Factory Orders
Notes: All index returns exclude reinvested dividends, and the 5-year and
10-year returns are
HEADLINES:
New home sales reach five-year highs. Despite higher mortgage rates, sales
of newly built homes surged in June to the highest level since May 2008. The
monthly increase beat economists’ expectations and indicates that the housing
market still has muscle.[v]
Durable goods orders rise in June. Orders for long-lasting manufactured
goods rose 4.2% last month, following a significant May increase, indicating U.S. factories
are doing well. The increase was driven in part by increased business spending
that signals that companies are expecting future demand to increase.[vi]
Chinese manufacturing slows. China’s manufacturing activity fell
to an 11-month low in July, damaged by weak global demand and reduced factory
orders. Manufacturing is a key component of China’s economy.[vii]
Eurozone economic activity picks up. One measure of European economic
activity showed an increase in July, for the first time since January 2012.
While economists are pleased by the result, several warned that the outlook for
the Eurozone economy remains weak.[viii]
“A wise man can learn
more from a foolish question than a fool can learn from a wise answer.” – Bruce
Lee
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The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities
considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30
significant stocks traded on the New York Stock Exchange and the NASDAQ. The
DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar
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in major international equity markets as represented by 21 major MSCI
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and Southeast Asia.
The S&P/Case-Shiller Home Price Indices are the leading
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