Can
the market continue to set records?
Markets
closed mixed for the week again, logging new highs for the S&P 500 and the
Dow, while the Nasdaq lost ground due to some earnings misses. So far, Wall
Street is experiencing its best month this year since January, buoyed by
reassurances from the Fed and generally positive economic data. For the week,
the S&P 500 gained 0.71%, the Dow increased 0.55%, and the Nasdaq lost
0.35%.[i]
Fed
Chairman, Ben Bernanke, testified before the House and Senate last week and
reemphasized his role as the Fed’s chief soother. His comments were very much
in line with previous speeches, underlining that the Fed will base quantitative
easing decisions on incoming economic data. While asset
purchases may indeed be pared back by the end of the year, the program could
also be left unchanged should economic data prove to be less than positive.[ii]
As
if to underscore the delicateness of the economy, housing data released
concurrently with Bernanke’s speech seemed to be in favor of leaving asset
purchases where they are. June housing starts missed expectations, largely due
to a 26.2% decline in multi-family units. The MBA Mortgage Refinance index hit
a two-year low, indicating that rising interest rates may be cutting into loan
applications.[iii][iv]
Even so, single-family starts are still up 11.5% from a year ago, and we are
wise not to get worked up over every bit of fluctuation in the data.
Second
quarter earnings season is in full swing, and the news is mixed. Of the roughly
20% of S&P 500 companies that have already reported, 65% have beat earnings
estimates, and 51% have beat revenue estimates. Corporate managers have done a
good job of managing investor expectations ahead of earnings season, so that
even moderate results look positive. However, revenues are still down as
compared to last quarter, indicating that many businesses are struggling with
demand. Interestingly, companies that depend on domestic revenue sources are
doing better than those that depend on foreign demand.[v]
For
the first time in weeks, the Fed will keep a low profile ahead of the FOMC
meeting on July 30 and 31, and earnings data will dominate headlines as we head
into the second quarter’s busiest reporting period. About a third of the
S&P 500 companies are due to report, including heavy hitters like Apple,
McDonald’s, Facebook, and Boeing.[vi]
While positive earnings beats could cause the market rally to continue,
volatility is likely and it is also possible that mediocre data could cause a
pullback in the short term.
ECONOMIC CALENDAR:
Monday: Existing Home Sales
Wednesday: PMI Manufacturing Index Flash, New
Home Sales, EIA Petroleum Status Report
Thursday: Durable Goods Orders, Jobless Claims
Friday: Consumer Sentiment
HEADLINES:
Motor city runs out of gas. The city of Detroit
declared bankruptcy, becoming the largest city in the U.S.
Jobless rate rises in 28 states. Highlighting the bumps in the road
toward economic recovery, the latest Labor Department report shows that jobless
claims fell last week in only 11 states. Jobs data is notoriously unreliable in
July as seasonal factors can cloud estimates; analysts will pay closer
attention to the less-volatile monthly claims number.[ix]
Fed report shows Atlantic coast factory activity up. The Philadelphia Federal Reserve Bank
said factory activity in eastern Pennsylvania ,
southern New Jersey , and Delaware
“When one door of
happiness closes, another opens, but often we look so long at the closed door
that we do not see the one that has been opened for us.”
– Helen Keller
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1. The charity must be an
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2. You cannot deduct the value of your
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3. The deduction only qualifies when
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transportation
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