Weekly Market Insight – Earnings Season Continues
On Friday, July 20, stocks lost a small amount of ground after President Trump escalated his threats of increasing tariffs on China. However, strong quarterly earnings reports from several large companies helped provide balance in the markets.[i] For the week, domestic indexes experienced little movement, as the S&P gained 0.02%, the Dow was up 0.15%, and the NASDAQ dropped 0.07%.[ii] International stocks in the MSCI EAFE had slightly more change, with a 0.63% gain.[iii]
What We Learned Last Week
- Corporate earnings rose in the 2nd quarter
As of July 20, 87 S&P 500 companies have released their 2nd quarter data. Of these companies, 83.9% surpassed analysts’ estimated results. In fact, the earnings season is going well enough that analysts have increased their growth projections. They now expect to see companies average 22% earnings growth over the past year, up from 20.7% growth projections on July 1.[iv]
- Retail sales increased
The most recent retail sales data indicated that consumers feel confident in the economy and labor market.[v] June’s strong growth, coupled with upward revisions to May’s results, support predictions for healthy Gross Domestic Product (GDP) increases in the 2nd quarter.[vi]
- Industrial production hit a new record
In June, U.S. manufacturing and mining increased. Overall, industrial production had an annual rate that was 6.1% higher in the 2nd quarter than the 1st quarter of 2018.[vii]
- Housing starts dropped
The latest housing-start report came in far below estimates. This decline occurred across all U.S. regions as homebui
lders shared concerns about materials costs and labor shortages. However, housing start data often fluctuates from month-to-month, and reports show that the 1st half of 2018 is 7.4% higher than the same time period last year.[viii]
What Is Ahead This Week
Corporate earnings season continues, and on Friday, we’ll receive the initial reading of 2nd quarter GDP. Last week’s retail sales and industrial production numbers contribute to very high expectations for economic growth results. Some estimates indicate that GDP could have increased as much as 5.2% in the 2nd quarter—much higher than the 2% growth between January and March.[ix]
We will watch these results closely and look for additional perspectives on the economy’s underlying strength. If you’d like to know more about what may lie ahead, contact us any time.
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Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
[i] https://www.reuters.com/article/us-usa-stocks/wall-street-slips-as-trade-worries-dampen-upbeat-earnings-idUSKBN1KA1JK?il=0
[ii] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
[iii] https://www.msci.com/end-of-day-data-search
[iv] https://www.reuters.com/article/us-usa-stocks/wall-street-slips-as-trade-worries-dampen-upbeat-earnings-idUSKBN1KA1JK?il=0
[v] http://wsj-us.econoday.com/byshoweventfull.asp?fid=495386&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
[vi] https://www.reuters.com/article/us-usa-economy/strong-u-s-retail-sales-brighten-economic-outlook-idUSKBN1K61KV
[vii] https://www.ftportfolios.com/Commentary/EconomicResearch/2018/7/17/industrial-production-rose-0.6percent-in-june
[viii] https://www.ftportfolios.com/Commentary/EconomicResearch/2018/7/18/housing-starts-declined-12.3percent-in-june
[ix] https://www.cnbc.com/2018/07/16/industrial-production-june.html
