Market Update: Friday, July 22, 2016

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  • Global equities mixed following Eurozone data, earnings barrage. U.S. stocks look to bounce back as investors continue to sift through earnings reports from General Electric and Starbucks, among others. Yesterday, the Dow snapped a 9-day win streak, and the S&P 500 also lost ground, paced by a 1% decline in industrials, though healthcare and utilities managed to finish positive. European equities are mixed as post-Brexit Purchasing Managers’ Index (PMI) results missed expectations in the U.K., yet beat in the Eurozone. In Asia, the Nikkei Index (-1.1%) slipped as the yen strengthened and traders pared expectations for more stimulus out of next week’s central bank meeting. Weakness also spread throughout the region as markets in Taiwan, Korea, and Hong Kong also fell. Meanwhile, WTI crude oil is trading close to $44/barrel, COMEX gold is down over half a percent, Treasury yields are up across the curve with the 10-year note yield near 1.58%, and strength continues in the dollar.

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  • Good start to earnings season overall. With just over 100 companies having reported results thus far, Thomson-tracked S&P 500 earnings growth is tracking to about -3%, more than 1% above the -4.5% estimate as of July 1. Technology has produced the most upside thus far (but is still expected to decline year over year), while second quarter earnings in energy, telecom, and utilities are tracking below prior estimates. Look for another earnings dashboard from us on Monday.
  • Some evidence of overseas weakness from corporate America. Although numbers overall have been good relative to expectations, a number of companies cited weakness overseas, largely in Europe, including companies in the airline, automotive, and even restaurant industries. The cautious tone has led analysts to reduce forward estimates, though by slightly less than recent quarterly trends.
  • The win streak is over. Equity markets pulled back slightly yesterday, with the Dow posting its first red day after a 9-day win streak. That was the longest win streak since 10 in a row in March 2013. Going back to 1900, this was the 31st 9-day win streak for the Dow. The longest ever streak of 13 was in January 1987. It is worth noting that the median return two weeks after a 9-day win streak is 1.0%, which is double the median 10-day return (at any time) since 1900 of 0.5%. Lastly, the S&P 500 is up 0.2% for the week with a day to go. This could mark the fourth consecutive week of higher equity prices after the Brexit vote.
  • Post-Brexit data: July PMI for manufacturing better than expected and better than June. At 52.9, the July PMI for manufacturing report, was better than expectations (51.5) and better than the June reading of 51.3. The report suggests that in the first month after Brexit, there was little impact on U.S. manufacturing from the political turmoil in Europe and the U.K.
  • EU and U.K. post-Brexit data. A number of indicators for the European Union and the United Kingdom were released this morning. For the most part, these figures came in better than expected. Most figures remain above 50, showing continued expansion in many sectors, though overall growth is unimpressive. The exception was the U.K., where both services and manufacturing PMIs declined sharply from the previous month and fell below 50. While the euro has been stable against the dollar this morning, the pound fell 1% after the figures were released.
  • Week ahead. In the U.S., the Federal Open Market Committee (FOMC) meeting, Q2 gross domestic product (GDP), and a slew of housing data and post-Brexit data on manufacturing highlight next week’s calendar. The peak week for Q2 earnings and the Democratic National Convention are also on the docket next week. Overseas, the Bank of Japan meeting and Q2 GDP reports in the U.K. and Eurozone will draw the most attention earlier in the week, and the Chinese PMI data for July are due out over the weekend of July 30-31.

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Friday

  • Markit PMI Mfg. (Jul)
  • Eurozone: Markit Mfg. PMI (Jul)

Saturday

  • G-20 Finance Ministers Meeting in China

Sunday

  • Japan: Imports and Exports (Jun)

Click Here for our detailed Weekly Economic Calendar

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