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Weekly Update

Market Summary

U.S. stocks slid lower this past week with the worst weekly returns since May partially driven by expectations for a more volatile corporate earnings season ahead. Additionally, reduced forecasts for the magnitude of a Fed rate cut at this month’s Federal Reserve meeting tempered stock market enthusiasm, with the anticipation for a 0.50% rate cut falling notably on Friday following a Wall Street Journal report that cited a high likelihood for just a 0.25% rate cut. For the week, the S&P 500 and Nasdaq Composite each lost -1.2% while the Dow Jones fell -0.6%.

Although the consensus forecast for second quarter S&P 500 corporate earnings growth remains in negative territory, last week’s reports generally surpassed expectations and lifted the expected year-over-year growth rate of the S&P 500 constituents to -2.1% from -3.1% in the week prior, according to FactSet. Such a growth rate would mark two consecutive quarters of negative earnings growth for the first time since 2016 following a -0.3% growth rate in the first quarter this year.

Looking abroad, the British Pound dropped to a six-month low last week after a debate between the two candidates vying to be Britain’s next prime minister raised worries about a no-deal Brexit. Both Boris Johnson and Jeremy Hunt said they would not be willing to accept the Northern Irish backstop element of Theresa May's Brexit deal, which is one of Brussels' principal demands in Brexit negotiations.

Second quarter corporate earnings season will likely garner most investor attention in the week ahead with 145 companies of the S&P 500 (almost 30%) set to report. The economic calendar is light this week, except for the first reading of second quarter U.S. GDP growth, which could have significant implications for the Federal Reserve meeting next week.

Economic Highlights

Retail Sales: U.S. retail sales in June came in well above expectations with 0.4% growth over the prior month compared to the consensus forecast for 0.2% growth. The report, in addition to the solid consumer sentiment report later in the week, continues to indicate a healthy U.S. consumer, which will play into the monetary policy decision from the Federal Reserve next week as an argument against substantial easing.

Oil: WTI crude oil prices fell -7.3% this past week as U.S. inventory climbed further, but ticked up to end the week and are rising in early trading this week on news that the U.S. shot down an Iranian drone that flew too close to an American warship and that Iran had seized a British oil tanker in the Strait of Hormuz. The British government threatened Tehran with "serious consequences" and advised U.K. ships to avoid the area.s.

US Economy – The Week Ahead

Tuesday, 7/23/2019

  • Existing Home Sales – Consensus Estimate: 5,334K (-0.1% MoM), Prior Month: 5,340K (2.5% MoM)

Wednesday, 7/24/2019

  • New Home Sales – Consensus Estimate: 656.5K (4.9% MoM), Prior Month: 626K (-7.8% MoM)

Thursday, 7/25/2019

  • Initial Jobless Claims – Consensus Estimate: 215,000 (-0.5% WoW), Prior Week: 216,000 (3.9% WoW)
  • Durable Goods Orders Month-over-Month Growth (Preliminary) – Consensus Estimate: 0.7%, Prior Month: -1.3%
  • Wholesale Inventories Month-over-Month Growth (Preliminary) – Consensus Estimate: 0.3%, Prior Month: 0.4%

Friday, 7/26/2019

  • U.S. Second Quarter 2019 GDP Growth Year-over-Year (First Preliminary) – Consensus Estimate: 2.6% (1.8% QoQ), Prior Quarter: 3.2% (3.1% QoQ)

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