Tech stocks fuel gains to end week. The S&P 500 Index is marginally higher in early trading, as large cap growth stocks fuel gains in the technology, consumer discretionary, and communication services sectors. Asian markets were mostly lower, led by a more than 2.5% drop in Japan’s Nikkei. European markets are solidly green late in trading, despite Q2 gross domestic product (GDP) showing a record contraction for the Eurozone. Congress will try to hammer out the latest wave of stimulus money to combat economic weakness. The latest news shows the White House is willing to cut a deal with Democrats to omit liability protection for employers, a top Republican request.
Outstanding results from big tech. Together, Amazon, Apple, Facebook, and Google—four of the five biggest companies in the S&P 500—grew revenue 18% and earnings 27% year over year, despite the pandemic. Results for these “stay-at-home” stocks helped drive the average upside surprise to a remarkable 22% for S&P 500 companies that have reported second quarter results (source: FactSet). These companies needed to step up to justify their strength, and that they did. We continue to like the tech and communications sectors.
Solid momentum for China’s economy. China’s official manufacturing Purchasing Manager’s Index (PMI) for July rose to 51.1 from 50.9, slightly ahead of consensus. The comparable services gauge inched lower to 54.2 from 54.4, but remained solidly over 50. These readings suggest continued momentum in China’s economy in July after GDP grew 3.2% year over year in the second quarter. On the other end of the spectrum, Euro-area GDP fell 12.1% (not annualized) last quarter, in line with expectations.
Concentration risk at the top. The top five stocks in the S&P 500—Apple, Microsoft, Amazon, Google, and Facebook—now account for nearly 22% of the index. We take a look at whether the concentration at the top poses a risk to the market later today on the LPL Research blog.
COVID-19 news. Daily new cases fell 1.6% Thursday but remain just under 68,000 (source: Johns Hopkins). The downtrend in new cases has flowed through to hospitalizations, which have fallen nationally over the past week, including in hotpots Arizona, California, Florida, and Texas. The United Kingdom imposed tighter lockdown measures on more than 4 million people in northern England. Congress seems no closer to an agreement on the stimulus package as supplemental unemployment benefits run out.
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