Market Update: Fri, July 26, 2019 | LPL Financial Research

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Daily Insights

Stocks rise after GDP, tech earnings. U.S. stocks are slightly higher this morning following better-than-expected gross domestic product (GDP) data and a busy afternoon yesterday with earnings reports from tech giants. Amazon and Google’s results effectively offset each other, with Amazon disappointing versus expectations but Google beating. Earnings season continues to tilt positive, but the market reaction to fundamentals may become more muted as concerns about trade uncertainty and global growth persist.

Consumers boost second-quarter GDP. Second quarter GDP grew 2.1%, higher than consensus estimates of 1.8%. Consumer activity added 2.9% to overall GDP, while trade and inventories were the biggest drags on growth. On the LPL Research blog later today, we’ll dig into the drivers behind second quarter GDP and outline our thoughts on current growth trends.

Markets digest ECB. Global markets initially cheered European Central Bank (ECB) remarks about the potential for a rate cut following the conclusion of its policy meeting yesterday, but reversed course during ECB President Mario Draghi’s press conference, signaling concerns that the ECB wasn’t acting quickly enough on weakening data. Euro and German bund yields initially fell when the ECB released its policy statement but then reversed course, moving higher. Recent reports out of Europe point to increasing recession risk. With the potential size of any policy action becoming more limited by already near-zero rates and a bloated balance sheet, the ECB is trying to find the combination of policy actions that can best support the economy.

Stocks consolidate near 3,000. After gaining about 10% since the end of May, the S&P 500 Index has spent the last three weeks in a tight range near the 3,000 level. However, under the surface, investors are rotating into more cyclical stocks such as financials, while defensive sectors have been lagging (as we highlighted in yesterday’s LPL Research blog post). While pullbacks are always a possibility, the technical picture continues to strengthen, suggesting such pullbacks may be good entry points for suitable investors. On the fixed income side, the 10-year Treasury yield has traded in less than a 25 basis point (0.25%) range since late May, but has not recorded a weekly close below 2%, a technical sign longer-term yields may finally be bottoming.

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This research material has been prepared by LPL Financial LLC.

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