Weekly Update - July 27, 2018
- Stocks showed mixed results for the week — large caps outpaced the tech heavy NASDAQ and small caps. Investors focused on corporate earnings, aided by some trade tension relief. Oil prices rose unevenly, gold prices fell. The 10-year U.S. Treasury yield nudged close to 3%.
- With 53% of S&P 500 companies reporting second-quarter results, 83% have exceeded earnings per share expectations, while 77% have beaten sales expectations. As of July 27, 2018, FactSet estimated the S&P 500 index’s second-quarter earnings growth rate at 21.3% and its 12-month forward P/E ratio at 16.7, above the five and ten-year averages of 16.2 and 14.4, respectively. Alphabet, Hasbro and Kaiser Aluminum impressed this week, whereas AT&T, Facebook and General Motors disappointed.
- Gross domestic product rose at a 4.1% annual rate in 2Q18, on the low end of expectations but still the strongest growth in almost four years. Consumption was up 4%, well above consensus. Nonresidential business investment grew at an annual rate of 7.3%, following 11.5% annual growth in 1Q18 and raising hopes that long-awaited capex was materializing. The fly in the ointment was the 3% PCE deflator, which drove year-over-year inflation to 2.4%.
- The Chicago Fed National Activity Index rebounded to 0.43 in June from -0.45 in May, led by improvements in production related indicators. The index’s three-month moving average rose to 0.16 in June from 0.10 in May.
- June existing home sales fell 0.6% to 5.38 million, missing estimates of 5.48 million and falling below May’s downwardly revised 5.41 million. Tight supply pushed the median sales price to an all-time high of $276,900. New home sales also continued recent weakness in June, falling 5.3% to 631,000 — far below expectations of 669,000. The median new home price fell 4.2% YoY to $302,100.
- A meeting between President Trump and the European Commission’s Jean-Claude Juncker de-escalated trade tensions, as the two parties agreed to work toward zero tariffs on non-auto industrial goods. Trump said steel and aluminum tariffs, as well as retaliatory tariffs, would get resolved. Juncker added the United States and European Union would not impose further tariffs while they sorted out their differences.