State of the Stock Market Analysis for the Week Ending on July 29th, 2018 Facebook, Intel and even Twitter Added to Rough Week on Wall Street 7-29-18)
It was a rough week on Wall Street as the likes of Facebook (FB), Intel (INTC) and even Twitter (TWTR) weighed on earnings numbers and market sentiment. The broader market held up well, though, and for all of the negative earnings news, the Dow ended just 1.6% lower while the Nasdaq finished the week 1.1% higher, and the S&P 500 managed to gain 0.6%. That was a fairly good performance despite stocks the FAANG stocks and technology stocks under a bit of pressure.
The interesting story from Friday was the Gross Domestic Product (GDP) report for the second quarter. There was a lot of optimism about this report, and some economists and strategists had suggested we might see a number close to 5%. The 4.1% number was decent though, and although it fell short of consensus estimates of 4.2%, the 4.1% number was still an a big improvement above the first-quarter showing of 2.2%.
GDP has been one of those economic reports that have frustrated investors for many quarters, and despite much of the strength in most economic sectors, housing, and consumer sentiment, the GDP reports have been a bit of a downer for investors and the stock market. Friday’s report was fairly strong, but it still lagged a bit from what most of Wall Street expected. It was a decent number that we have not seen in years, so the bullish crowd will likely take it as a win.
The trade and tariff wars edge to edge onward and upward, but it looks as though they are not escalating, and that is a plus. These tariffs seem to be more of a “discussion” leading toward more “fairness” than a “knock-down” trade war. The money that President Trump signed to help farmers and ranchers was a strong gesture, but many of these farmers and ranchers have said that they simply want free markets rather than a temporary bailout from the U.S. government.
The yield on the 10-year U.S. Treasury has edged up a bit (2.96%), and it is closing in on the 3% level, which is a level we will continue to watch closely. Many of the bond geniuses have warned of 3%, and since housing loans are so closely tied to the 10-year, a rise in longer-term rates could hurt the housing market and the broader economy. Higher rates would likely help banks and insurance companies, so we will see what happens.
Earnings continue to come in mixed, but the stock market is holding up well. Facebook’s roughly 20% decline was interesting to say the least. Intel’s (INTC) fall on Friday fall was worrisome as well. When we see earnings shortfalls from the mega-caps, it often does not help bring back stock market buyers in a big way. We have a lot of additional earnings on the way, and there actually have been some pretty good numbers.
Another plus for the stock market is that Jerome Powell and his crew have remained very low key. The Fed seems like it wants to raise rates, but it does not seem in a mad dash to do so. Mr. Powell has said he will help out immediately if any economic issues come into play. That said, the Gorilla wishes each and all a wonderful, late-July weekend, and we will back in action on Monday. Have a great weekend!
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