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Weekly Update – July 20, 2018

  • It was a week of maximal noise and minimal signal for stocks. Markets retreated after the Putin–Trump Helsinki press conference, then advanced as investors shrugged off new tariff threats to focus on robust corporate earnings. On Thursday President Trump berated the Federal Reserve for raising interest rates and stocks pulled back again, finishing the week about where they started.
  • U.S. oil prices slipped early in the week but recovered after Saudi Arabia denied plans to ramp up exports. Gold prices slid as trade tensions mounted and U.S. Treasury yields climbed. The 10-year Treasury ended the week higher at 2.89%.
  • With 17% of S&P 500 companies reporting second-quarter results, 87% have exceeded earnings per share (EPS) expectations, while 77% have beaten sales expectations. As of July 20, 2018, FactSet estimated the S&P 500 index’s second quarter earnings growth rate at 20.8% and its 12-month forward P/E ratio at 16.5, above the five- and ten-year averages of 16.2 and 14.4, respectively. Bank of America, Johnson & Johnson and Snap-On impressed this week; American Airlines, EBay and Netflix disappointed.
  • U.S. retail sales rose by 0.5% in June, marking five monthly increases and signaling that consumer spending is picking up after a tepid start this year. May sales were revised from 0.8% to 1.3%, due to gains at auto dealers and nonstore vendors.
  • U.S. industrial production rose 0.6% after May’s 0.5% decline. U.S. manufacturing production gained 0.8% compared to May’s decline of 1.0%.
  • The Empire State Manufacturing Survey fell 2.4 points in July, to 22.6, after hitting an eight-month high of 25 in June. The Survey provided no hard evidence that tariffs are yet hurting business investment. July’s Philadelphia Fed Index came in at 25.7 against June’s 19.9, a sharp drop from May’s 34.4.
  • The National Association of Home Builders Housing Market Index registered 68 for July, unchanged from June, and below estimates of 69. Expectations over the next six months declined. Housing starts fell 12.3% in June to a nine-month-low of 1.2 million units, below May’s downwardly revised 1.3 million. According to Bespoke, the report was the biggest miss since January 2007.

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