Market Update: Monday, July 31, 2017

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Last Week’s Market Activity

  • Stocks closed mixed on Friday; S&P 500, Nasdaq -0.1%, Dow +0.2%. GDP report contributed to mixed close, Q2 number broadly in line with consensus, but Q1 revised slightly lower from 1.4% to 1.2%.
  • Healthcare (+0.5%) was strongest performer, industrials (+0.2%) and financials (+0.04%) also gained. Consumer staples (-0.9%) lagged.
  • Rates fell slightly across the curve, but still slightly higher on the week; 10-year Treasury yield closed at 2.29%.

Overnight & This Morning

  • U.S. indexes marginally higher in early trading.
  • Asian markets mostly higher overnight. Shanghai Composite (+0.6%), Hang Seng (+1.3%), though the Nikkei dropped 0.2%.
  • In Europe, Germany’s DAX is up 0.3%, the U.K.’s FTSE 100 is down 1%, and French CAC 40 is flat.
  • Eurozone consumer price index met consensus expectations at 1.3%; core inflation did tick up 0.1% to 1.2%, matching its strongest reading this year.
  • Commodities – WTI crude oil ($49.45/bbl) and COMEX gold ($1,274/oz.) both marginally lower, copper +0.7%.
  • Treasuries and dollar little changed; 10-year yield 2.30%.
  • In today’s economic calendar, we get the Chicago Purchasing Managers’ Index, Dallas Fed Manufacturing Index, and pending home sales.

 

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Key Insights

  • GDP check-in. Last week’s gross domestic product (GDP) report also included an annual revision of past GDP data, which went back to 2014.  Advance estimates like the one we saw on Friday are fairly accurate in general, but numbers can and do change over time as additional data is obtained, sometimes significantly. For this reason it is always important to take a broader look at various data points and not rely solely on specific numbers. The GDP number we saw on Friday at 2.6%, was in line with estimates, but the fact that earnings growth has also been strong lends some additional credibility to the idea that the economy is continuing to grow.

Macro Notes

  • Earnings season update. Last week was busy, with 192 companies reporting. The season so far has been solid, with about 60% of companies reporting, we have an earnings beat rate of 73%, and a revenue beat rate of 71%. Both are down about 1% from last week, but a 70% beat rate for both earnings and revenue is rare. So far, earnings have produced about a 3% upside to June 30 estimates. Most of this upside is coming from financials, healthcare, and industrials. Earnings growth is clocking in at 10.8%, up more than 1% from last week. Revenue growth is at 5%. Taking energy out of the equation slows earnings growth to 8.5%, still a solid number. This next week will be another busy one with 134 S&P 500 companies reporting, which will bring us to 423, or about 85% of index constituents.

  • August preview. While a large amount of data comes out this week, the rest of the month is fairly tame, though there is still plenty going on. We highlight the jobs report, inflation data, back to school shopping, and the Fed’s Jackson Hole Symposium in this week’s Weekly Economic Commentary.
  • Opportunity in small caps? We see small caps becoming an increasingly attractive tactical opportunity among policy skepticism. Small caps have underperformed in 2017, but performance has been improving since the end of May. One of the main reasons at a macro level is that markets have been losing confidence in the ability of policy makers to enact corporate tax reform and other pro-growth policies. We examine this in greater detail in this week’s Weekly Market Commentary.
  • Beware of August. It has been a strong year for equity gains, but be aware that August and September are the only two months of the year to average a negative return since 1980. Additionally, no month sports a larger average loss when it is lower than August. Interestingly, some of the most spectacular drops going back the past 20 years have taken place during this month. Today on the LPL Research blog we will take a closer look at this phenomenon.

 

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Click Here for our detailed Weekly Economic Calendar

Monday

  • Chicago Area PMI (Jul)
  • Pending Home Sales (Jun)
  • Eurozone: Unemployment Rate (Jun)
  • Italy: CPI (Jul)
  • Eurozone: CPI (Jun)
  • Mexico: GDP (Q2)
  • Japan: Nikkei Mfg. PMI (Jul)
  • China: Caixin Mfg. PMI (Jul)

Tuesday

  • Personal Income & Spending (Jun)
  • Marking Mfg. PMI (Jul)
  • ISM Mfg. Index (Jul)
  • Construction Spending Jun)
  • Italy: Markit Mfg. PMI (Jul)
  • France: Markit Mfg. PMI (Jul)
  • UK: Markit Mfg. PMI (Jul)
  • Germany: Unemployment Rate
  • Germany: Markit Mfg. PMI (Jul)
  • Eurozone: Markit Mfg. PMI (Jul)
  • Eurozone: GDP (Q2)
  • Japan: Vehicle Sales (Jul)

Wednesday

Thursday

  • Markit Services PMI (Jul)
  • ISM Non-Mfg. (Jul)
  • Durable Goods Orders (Jun)
  • Capital Goods Shipments & Orders (Jun)
  • Germany: Retail Sales (Jun)
  • Italy: Markit Services PMI (Jul)
  • France: Markit Services PMI (Jul)
  • Germany: Markit Services PMI (Jul)
  • Eurozone: Markit Services PMI (Jul)
  • UK: Markit Services PMI (Jul)
  • Eurozone: Retail Sales (Jun)

Friday

 

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