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Market Summary

Strong corporate earnings results and a better than anticipated economic growth report on Friday helped propel U.S. equities to new highs this past week. For the week, the S&P 500 and Nasdaq Composite climbed 1.7% and 2.3%, respectively, driven heavily by the information technology and communication services sectors, while the Dow Jones inched upward by 0.1%. Bond yields picked up across the curve following the solid economic growth report and lowered expectations for the magnitude of an interest rate cut at this week’s Federal Reserve meeting.

With about half of the S&P 500 constituents having reported second quarter earnings, the combined reported growth rate for the S&P 500 thus far is about 1.3% over the prior year compared to the initial consensus forecast of -3.1%, according to FactSet. However, earnings estimates for the remainder of the year continue to slide lower with the consensus growth rates for the third and fourth quarter sitting at -1.9% and 4.9%, compared to the consensus rates of -0.5% and 6.3% from one month ago.

Although U.S. GDP growth slowed from the first quarter rate of 3.1%, the reported 2.1% growth rate for the second quarter came in well above expectations of 1.8% driven by a surge in consumer spending. The strong consumption numbers, along with a boost from government spending, helped offset falling residential and business investment as well as lower net exports and inventories.

Meanwhile in the U.K., Boris Johnson was elected leader of Britain’s governing party. Johnson has said he wants to renegotiate a new timeline with the European Union, a move that the E.U. has said isn’t up for discussion. The British Pound has dropped more than 2% since the announcement, but the equity markets are taking a wait and see approach with no real drop in value since the election.

The week ahead is chock-full of economic and business data points with the monthly employment report on Friday and 170 constituents of the S&P 500 set to report earnings. Additionally, the U.S. and China will resume trade talks in Shanghai this week. However, the most anticipated event this week by investors will be the Federal Reserve meeting and press conference on Wednesday. Market participants have fully priced in a rate cut at this week’s meeting, but the majority expect just a 0.25% rate cut following a strong series of economic reports.

Economic Highlights

Oil: A dip in the U.S. crude oil stockpile along with lingering Middle East tensions led oil prices higher this past week, with WTI crude oil prices creeping 0.8% higher to end the week at $56.20/barrel.

Durable Goods: Following several months of weakness, durable goods orders were strong in June rising 2.0% compared to the consensus forecast of 0.7%. Investors will be watching this rebound closely to assess the likelihood of a pick-up in business fixed investment, which has been relatively subdued.

US Economy – The Week Ahead

Tuesday, 7/30/2019

  • Personal Consumption Expenditures (PCE) Index Year-over-Year Growth – Consensus Estimate: 1.5%, Prior Month: 1.5%
  • S&P/Case-Shiller Home Price Index Year-over-Year Growth – Consensus Estimate: 2.3%, Prior Month: 2.5%

Wednesday, 7/31/2019

  • Federal Open Market Committee (FOMC) Meeting – Consensus expectation for a 0.25% rate cut
  • ADP Employment Survey – Consensus Estimate: 150,000, Prior Month 102,000

Thursday, 8/1/2019

  • Initial Jobless Claims – Consensus Estimate: 212,000 (2.9% WoW), Prior Week: 206,000 (-4.6% WoW)
  • ISM Manufacturing PMI – Consensus Estimate: 52.0 (0.6% MoM), Prior Month: 51.7 (-0.8% MoM)

Friday, 8/2/2019

  • Hourly Earnings Growth Year-over-Year – Consensus Estimate: 3.2%, Prior Month: 3.1%

  • U.S. Unemployment Rate – Consensus Estimate: 3.7%, Prior Month: 3.7%

  • Nonfarm Payrolls Added – Consensus Estimate: 160,000, Prior Month: 224,000

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