Market Summary
Stocks showed mixed results last week, with large cap stocks continuing to do well with the notable exception of many tech stocks. Investors focused on second quarter corporate earnings, and prices were aided by some calming of trade tensions and a report of solid economic growth later in the week.
The main headline of last week was the 2Q 2018 GDP, the official scorecard of U.S. economic growth. Healthy consumer spending helped lift growth to 4.1%, the fastest pace since 2014. That’s quite a bit better than the revised 2.2% growth in the first quarter. Some analysts have said that an increase in exports ahead of tariffs inflated the GDP numbers, but a decrease in inventories-- partly because of those increased exports-- almost exactly offset the contribution of higher exports in the GDP calculation.
Second quarter corporate earnings results continue to flood in, with 83% of those reporting exceeding profit forecasts. However, some large technology stocks didn’t quite impress tech stock traders. The tech-heavy NASDAQ had a big down day on Thursday after Facebook underwhelmed investors and posted the largest one-day market value drop of any stock ever. Other “FANG” brethren, including Apple, Amazon, Netflix and Google also had very bad days. Despite high growth in most of these companies, the results didn’t quite meet the very, very high hopes for these stocks.
European Commission President Juncker and President Trump agreed to a cease-fire in the escalating tariff dispute, which helped to quiet fears related to President Trump’s earlier threat to slap tariffs on virtually all imports from China.
This week we will see a blizzard of economic data releases including the important July employment figures on Friday as well as another Federal Reserve meeting on Wednesday.
Economic Highlights
- Economic Growth: Very good 2Q growth increased hopes for a 3% growth rate for all of 2018. Consumer spending grew 4.0% and private business fixed investment surged 7.3%. GDP inflation (PCE deflator) rose to 3.0%.
- Manufacturing: While manufacturing surveys continued to point to solid growth, June preliminary total durable goods orders came in at a weaker than forecast 1.0%, but “core” orders and shipments met expectations.
- Housing: Home sales continue to be weak, new home sales fell 5.3% and existing down 0.6% in June.
US Economy - The Week Ahead
Tuesday, 7/31/2018
Personal Income, Personal Spending and Consumption Expenditures (PCE) Index
Conference Board Consumer Confidence Index – Estimate: 126.5, Prior Month: 126.4
Wednesday, 8/1/2018
ISM Manufacturing PMI – Consensus Estimate: 59.3, Prior Month: 60.2
ADP Employment Change – Consensus Estimate: 185k, Prior Month: 177k
Federal Open Market Committee (FOMC) Meeting - No rate change expected
Thursday, 8/2/2018
Initial Jobless Claims – Consensus Estimate: 220k, Prior Week: 217k
Factory Orders, Durable Goods Orders and Shipments (June Final)
Factory Orders Month-over-Month – Consensus Estimate: 0.7%, Prior Month: 0.4%
Friday, 8/3/2018
U.S. Unemployment Rate – Consensus Estimate: 3.9%, Prior Month: 4.0%
Change in Non-Farm Payrolls – Estimate 190k, Prior Month 213k
Hourly Earnings Growth Year-over-Year – Consensus Estimate: 2.7%, Prior Month: 2.7%
Trade Balance – Consensus Estimate: -$46.5B, Prior Month: -$43.1B
ISM Non-Manufacturing PMI – Consensus Estimate: 58.6, Prior Month: 59.1
