Stocks ended higher last week as earnings season kicked off and investors digested a busy week of macro data. The big bullish catalyst came from global central banks. The U.S. Fed and the European Central Bank (ECB) made dovish comments which prompted buyers to return from a 4-week hiatus.
First, Janet Yellen softened her slightly hawkish stance when she gave a dovish testimony on Capitol Hill. Second, the ECB said it is ready to print money (continue QE) for the next few years. This was a bullish one-two punch that helped buyers return to the market.
Earnings season officially kicked off last week and a slew of companies will be reporting over the next several weeks. Remember, in addition to analyzing the data, we focus more on how the market reacts to the data. Three of the big banks opened lower on Friday after reporting earnings: Wells Fargo (WFC), JP Morgan (JPM) and Citigroup (C). So far, that is not ideal but we’ll see how it plays out over the next few weeks.
A Closer Look at What Happened Last Week…
Stocks closed mostly higher on Monday as investors prepared for earnings season. Amazon’s stock (AMZN) jumped nearly 2% as the company got set for its big Prime Day sales. Prime Day features big deals for Amazon’s Prime customers and tries to encourage non-prime members to join prime. Needless to say, Prime Day was a huge success for the company.
On Tuesday, stocks ended higher in a volatile session after Donald Trump Jr. released a chain of emails that showed direct connection with a Russian lawyer. Intra-day, the Dow fell about 100 points but recovered by the close. Minneapolis Fed President Neel Kashkari said U.S. banks are still too big to fail which barely moved the needle.
Stocks rallied nicely on Wednesday after Janet Yellen gave dovish testimony on Capitol Hill. Yellen basically said the Fed is ready to shift back to easy money policies if conditions deteriorate. Big money also flowed into a slew of beaten down tech stocks as they come back into play.
Thur & Fri Action:
On Thursday, stocks rallied helping the Dow hit a fresh record high. The ECB said it is ready to continue QE for the next few years which is also a very dovish stance. Remember, the entire move from the historic 2009 low was based on easy money from global central banks. So the fact that they are still ready to shift back to an ultra-easy money stance was enough to bring buyers back into the market.
Stocks edged higher on Friday after Wells Fargo, JP Morgan and Citigroup all reported earnings. Interestingly, all three stocks fell in the morning but the broader market still rallied.
Market Outlook: Bulls Defend Support
The bulls showed up and defended important support in June which is very bullish for the market. As we have said several times over the past month, as long as support holds, the bulls remain in control of this market. As always, keep your losses small and never argue with the tape.