Bulls Remain In Control:
Stocks are very strong as the benchmark S&P 500 has vaulted 9.1% in the past four weeks! Remember, in “normal” (a.k.a. non easy money days),a 10% rally for the entire year was considered healthy so 9.1% in 4 straight weeks is extraordinary.
I’m frequently asked by clients at 50Park.com: How can we rally so much and hit fresh record highs with lousy earnings and tepid economic data? The answer is simple: easy money. Remember, the bull market is 7.5 years old and over that time the S&P 500 has soared 225%! Since the March 2009 low, I’m hard pressed to find a period of robust earnings and robust economic growth. Nevertheless, stocks continue to grind higher. Again, it is not the news that matters. All we care about is how does the market react to the news. So far the reaction remains very strong.
In the short term, the market is very extended to the upside and way over due to pullback. The bulls want see resistance (former chart highs 2,134) become support. The intermediate and long term trend remain very strong.
A Closer Look at What Happened Last Week
Stocks edged higher on Monday after the attempted military coup in Turkey failed over the weekend and investors continued to sift through the latest round of earnings and economic data. Bank of America (BAC) rallied nicely on Monday after the company reported earnings. In M&A news, Softbank said they are going to acquire chip designer ARM for a $32-billion all-cash deal. ARM is based in London and shares soared nearly 50% on the news. The deal is the largest acquisition of a British company since June’s Brexit vote. The National Association of Home Builders said U.S. homebuilder sentiment slid by 1 point in July,as foot traffic of potential buyers fell and construction constraints continued. In China, homes prices slowed for the second consecutive month in June, dragged down by lower by weakness in small cities.
Stocks were very quiet on Tuesday as investors digested the latest round of economic and earnings data. Economic data was relatively light, U.S. housing starts rose by 1.19 million units versus expectations of a 1.17 million. Earnings data was mixed, shares of Netflix (NFLX) and Goldman Sachs (GS) fell after reporting earnings while shares of Johnson and Johnson (JNJ) rallied after reporting earnings.
Stocks rallied on Wednesday after the latest round of earnings data was announced. Morgan Stanley (MS) and Microsoft (MSFT) both rallied after announcing their results. According to the CME Group’s FedWatch tool, traders see a roughly 40% chance the Fed will hike rates by its December meeting, which was less than 20% a few weeks ago. The US Dollar edged higher on the news. Elsewhere, the S&P rating agency warned of a possible: ‘Crexit.’ The rating agency believes that corporate debt is projected to swell over the next several years, thanks in part to easy money from global central banks. The rating agency warned of a potential corporate debt crisis (a.k.a crexit) and said by 2020, business debt likely will climb to $75 trillion from its current $51 trillion level. That is a huge increase and they don’t believe it will become a problem as long as credit quality stays high, interest rates and inflation remain low, and the economy continues to grow.
Thur & Fri Action:
Stocks fell on Thursday as investors digested the latest round of earnings and economic data. Overnight, Japan’s Central Bank said they do not want “helicopter money” which is a joke because they are one of the most aggressive central banks in the world and already own over 10% of the Nikkei (Japan’s stock market). Elsewhere, the European Central Bank (ECB) held rates steady in its first official meeting post Brexit. Earnings roulette continued as a few stocks gapped up (EBAY, QCOM, BIIB and DPZ) and a few gapped down (INTC, LUV, etc). Economic data was mixed. Jobless claims fell to 253k, easily beating estimates for 265k. The Philly Fed index fell to negative -2.9, which missed estimates for positive 5. The Chicago Fed Activity index came in at 0.16, beating the last reading for -0.51. The FHFA House Price Index edged higher by 0.2%, missing estimates for 0.4%. Existing home sales rose to 5.570M, beating estimates for 5.475M. Finally, Leading Indicators rose to 0.3%, matching estimates for 0.3%. Stocks rallied on Friday.
Market Outlook: Stocks Are Strong
The market finally broke out of its very long trading range and the key now is to see if this rally can continue. Economic and earnings data remain less than stellar which could mean more easy money from global central banks. As always, keep your losses small and never argue with the tape. Schedule a complimentary appointment today if you want to talk to Adam about your portfolio. Visit: 50Park.com