Stocks Hit New Highs As Earnings Season Continues
The major indices rallied nicely last week as investors digested a slew of earnings and economic data. On average, the reaction to earnings was positive as the major indices flirted with fresh record highs. There were a few big earnings disappointments (gap down) and a few nice surprises (gap up) which happens during every earnings season. I only get “concerned” when the vast majority of stocks gap down, the major averages are hit with a large bout of selling, and very little to no gap ups. For now, that is not the case. Next up, we have the Fed meeting and another heavy round of earnings. Until the market sees any significant selling, the bulls deserve the benefit of the doubt.
Monday-Wednesday’s Action:
On Monday, the market was quiet as investors waited for a busy week of earnings and some economic data. According to FactSet, so far, over 15% of the S&P 500 has posted quarterly results and 78.5% have topped analyst expectations for earnings while 67% have reported better-than-expected quarterly revenues. In other news, China announced a new Nasdaq style tech exchange which opened on Monday. On Tuesday, stocks rallied nicely as investors digested the latest round of earnings and some good news was announced regarding the US-China trade talks. Stocks were mixed on Wednesday after Boeing and Caterpillar fell after reporting earnings. The tech heavy Nasdaq composite hit a fresh record high after a few tech stocks gapped up on earnings. Semiconductor stocks rallied nicely after Texas Instruments gapped up on earnings.
Thursday & Friday Action:
On Thursday, stocks fell after the latest round of earnings were released. Facebook and Tesla both fell after reporting earnings. After Thursday’s close, Amazon fell after reporting earnings and Starbucks and Alphabet were some of the high profile companies that rose. Stocks were relatively quiet on Friday after the government said GDP rose 2.1% in the second quarter, down from 3.1% in Q1. The 2.1% barely beat the Street’s estimate for a gain of 2%. GDP grew largely because the consumer was strong (consumer expenditures increased 4.3%) but business investment fell 5.5%.
Market Outlook: Easy Money Is Back
Once again, global central banks showed up and juiced markets. The market has soared all year based on two key points: optimism that a trade deal will be reached between the U.S. and China and more easy money from global central banks. Earlier this year, the Federal Reserve reversed its stance and moved back into the easy money camp. Then, other central banks followed suit and that means easy money is back to being front and center for the market. Separately, the trade talks have resumed with China and the markets are back to new highs. As always, keep your losses small and never argue with the tape.
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