Monthly Archives: July 2018

Market Insights 7/30/2018

Last week’s tech-fueled decline carried over to the start of the new week, with U.S. equities finishing lower, and as caution sets in ahead of a busy economic calendar and a number of monetary policy meetings.

Treasuries were mixed following a better-than-expected read on housing and crude oil prices gained ground, while gold and the U.S. dollar were lower.

The Markets….

The Dow Jones Industrial Average (DJIA) fell 144 points (0.6%) to 25,307

The S&P 500 Index decreased 16 points (0.6%) to 2,803

The Nasdaq Composite dropped 107 points (1.4%) to 7,630

In moderate volume, 729 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq

WTI crude oil rose $1.44 to $70.13 per barrel and wholesale gasoline was unchanged at $2.11 per gallon

The Bloomberg gold spot price declined $2.34 to $1,221.88 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.4% at 94.32

Housing and regional manufacturing reports top forecasts, kicking off busy economic week

Pending home sales rose 0.9% month-over-month in June, versus the Bloomberg projection of a 0.1% gain, and following the unrevised 0.5% decline registered in May. Sales were 4.0% lower y/y. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales, which unexpectedly declined in June.

The Dallas Fed Manufacturing Activity Index declined to 32.3 in July from June’s unrevised 36.5 level and versus forecasts of 31.0, with a reading above zero denoting expansion.

Treasuries were mixed, as the yield on the 2-year note declined 1 basis point (bp) to 2.66%, while the yields on the 10-year note and the 30-year bond rose 2bps to 2.98% and 3.11%, respectively.

Treasury yields continue to grind higher in the wake of last week’s Q2 GDP report that showed growth of 4.1% on a quarter-over-quarter annualized basis, led by much stronger-than-expected consumer spending.

Tomorrow’s economic calendar will yield a number of reports, beginning with personal income and spending, forecasted to show both measures increased 0.4% m/m during June, followed by the Q2 Employment Cost Index, expected to have gained 0.7% q/q. Later in the morning, the S&P CoreLogic Case-Shiller Home Price Index will be released, with prices in the 20-city composite anticipated to have rose 6.4% y/y and 0.2% on a seasonally-adjusted basis for May, followed shortly thereafter by the Chicago Purchasing Managers Survey, with economists predicting a level of 62.0 for July. Consumer Confidence will round out the docket, forecasted to tick lower to a level of 126.0 for July from the 126.4 posted the month prior.

Europe and Asia lower with earnings and monetary policy in focus

European equities finished mostly to the downside, with the euro and British pound gaining some ground on the U.S. dollar, while caution likely set in ahead of a host of monetary policy decisions out of the U.S., U.K., Japan and India. Technology stocks led the decline as pressure on the sector continued amid earnings scrutiny.

The markets digested reports that showed Eurozone economic confidence dipped by a slightly smaller amount than expected for July, while German consumer price inflation came in a bit cooler than expected for this month. Bond yields in the region are higher.

Stocks in Asia finished mostly lower, amid some likely caution ahead of this week’s monetary policy decisions out of the U.S., Japan, U.K. and India, while a heavy dose of U.S. economic reports are also due out this week.

Stocks in Japan declined, even as the yen slipped and the nation reported a rebound in retail sales for June. Mainland Chinese equities and those traded in Hong Kong traded lower, and markets in Australia and South Korea also dipped. But, Indian listings advanced, extending a recent run likely supported by a retreat in the U.S. dollar and continued favorable earnings results.

Random Thoughts

Three things to consider as July comes to a close:

The S&P 500’s typical August performance: Since WWII, the S&P 500 gained about 1%, on average, in July of midterm election years, but then stumbled in August, ranking it among the three worst months.

The deepest August slump was in 1998, when the S&P 500 tumbled 14.6% in response to the losses endured by the hedge fund Long Term Capital Management. August also witnessed the second-highest rise of any month at 11.6%, in 1982, as the market began its 1982-87 bull run. Today, history says that investors should prepare for, but not necessarily run from, an increase in volatility.

Momentum Groups continue to beat the market: Despite an end-of-month social media meltdown, investors may still be willing to stick with a momentum strategy. A hypothetical portfolio of an equal weighting to each of the top 10 S&P 500 sub-industries based on trailing 52-week price returns, re-balanced monthly, has outpaced the “500” on a MTD and YTD basis.

In addition, the portfolio gained 13.6% per year vs. 8.1% for the S&P 500 and beat the broader market in 71% of all calendar years since 1991. The S&P 500 sub-industries with the highest 12-month trailing return include: Application Software, Department Stores, Diversified Support Services, Electronic Equipment & Instruments, Health Care Facilities, Human Resource & Employment Services, Internet & Direct Marketing Retail, Oil & Gas Refining & Marketing, Railroads and Trading Companies & Distributors.

Midterms and the Market: In the three months prior to the Presidential election, a gain in the S&P 500 correctly predicted an incumbent party victory 88% of the time since 1948. Can we glean similar midterm insights from August-October returns? Past performance is no guarantee of future results, nor is it a very good predictor of midterm outcomes.

Market Insights 7/27/2018

Strong figures on Q2 economic output and stellar quarterly results from Amazon.com were unable to overcome some disappointing earnings reports from Dow components Intel and Exxon Mobil, pressuring U.S. equities to finish lower in today’s session.

Technology issues led the laggards, weighed further by below-par user data from Twitter.

Treasuries were higher, with a read on consumer sentiment coming in above expectations, but below month-ago levels, while crude oil prices and the U.S. dollar were lower, and gold was nearly unchanged.

The Markets…

The Dow Jones Industrial Average (DJIA) fell 76 points (0.3%) to 25,451

The S&P 500 Index decreased 19 points (0.7%) to 2,818

The Nasdaq Composite tumbled 115 points (1.5%) to 7,737

In moderate volume, 756 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq

WTI crude oil lost $0.92 to $68.69 per barrel and wholesale gasoline shed $0.01 to $2.11 per gallon

The Bloomberg gold spot price inched $0.72 higher to $1,223.41 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.1% at 94.66

Markets were mixed for the week, as the DJIA rose 1.5%, the S&P 500 Index was 0.6% higher, while the Nasdaq Composite declined 1.1%

To date, 53% of the companies in the S&P 500 have reported actual results for Q2 2018. In terms of earnings, more companies are reporting actual EPS above estimates (83%) compared to the five-year average. If 83% is the final number, it will mark the highest percentage of S&P 500 companies reporting a positive EPS surprise for a quarter since tracking began in Q3 2008.

In aggregate, companies are reporting earnings that are 2.5% above the estimates, which is below the five-year average. In terms of sales, more companies (73%) are reporting actual sales above estimates compared to the five-year average. In aggregate, companies are reporting sales that are 0.9% above estimates, which is also above the five-year average.

Advance read on Q2 GDP tops 4%, but just shy of expectations

The first look (of three) at Q2 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 4.1%, just shy of the consensus estimate of 4.2%. Q1 GDP expanded by an upwardly revised 2.2% rate. Personal consumption was reported at a 4.0% gain, above the forecasted 3.0% rise, and compared to the downwardly revised 0.5% increase posted in Q1.

The status of the American consumer looks quite solid. However, there are headwinds facing the consumer, starting with the sluggish wage growth we’ve seen throughout much of this economic expansion. While that has allowed inflation to stay relatively low and the Federal Reserve to proceed on a slow and steady course toward monetary policy normalization, it may also have impeded Americans’ ability to really ramp up spending. And after the financial crisis, we haven’t seen debt increase in a substantial way, which could have helped to further fuel spending.

The final July University of Michigan Consumer Sentiment Index was adjusted higher to 97.9, from the preliminary 97.1 figure, where forecasts had expected it to remain. The index was slightly below June’s 98.2 level. The upward revision came as the expectations and current conditions components of the report were both adjusted higher from preliminary reads, with the former up and the latter down versus June’s figures. The 1-year inflation forecast dipped m/m to 2.9% from June’s 3.0% and the 5-10 year outlook ticked lower to 2.4% from 2.6%.

Treasuries were higher, as the yield on the 2-year note fell 2 basis points (bps) to 2.65%, and the yields on the 10-year note and the 30-year bond lost 1 bp to 2.96% and 3.08%, respectively.

Europe and Asia finish higher to close out the week

European equities finished trading nicely higher to close out the week, with focus on earnings and the Q2 GDP read out of the U.S. In economic news in the region, Germany reported a larger-than-expected rise in import prices for both y/y and m/m measures and, per Bloomberg, the country’s state investment bank is acquiring a stake in one of its largest electric grid operators, citing national security concerns, in an attempt to block a Chinese company from buying the holding.

France reported advance Q2 GDP figures that fell shy of forecasts and also reported consumer spending data for June that was well-below consensus expectations. The euro and British pound managed slight gains versus the U.S. dollar and bond yields in the region finished mixed.

The U.K. FTSE 100 Index was up 0.5%, Germany’s DAX Index, Italy’s FTSE MIB Index and Switzerland’s Swiss Market Index advanced 0.4%, France’s CAC-40 Index increased 0.6%, and Spain’s IBEX 35 Index traded 0.9% higher.

Stocks in Asia finished mostly higher on Friday, following yesterday’s mixed performance in the U.S. as market participants in the region may be looking ahead to next week’s Bank of Japan (BOJ) policy meeting. Japanese equities advanced amid some slightly hotter-than-expected regional CPI reads and as traders speculate over possible changes the BOJ could announce next week when they meet. During the previous quarter the BOJ reduced its purchases of so-called super long bonds by approximately 7.6%, per Bloomberg.

Reports from Reuters and Bloomberg also suggest that officials are debating ways to reduce side effects of their current yield-curve control policy where the BOJ is attempting to keep 10-year yields around zero percent. Central banks remain in focus globally, with yield curves being closely watched. And specific to the BOJ, no short-term rate hikes are expected by the market in the near-term, but the target rate for the longer-term 10-year bond may be increased to 0.1% from zero.

Stocks in China were mixed with those traded on the mainland declining and those listed in Hong Kong ticking higher, as the world’s second-largest economy reported a 20.0% jump in industrial profits y/y for the month of June. Meanwhile, markets in Australia, South Korea and India finished, with the latter hitting fresh highs and extending its winning streak to six-straight sessions.

Market Insights 7/26/2018

U.S. equities finished mixed, as smoothed trade concerns following yesterday’s trans-Atlantic meeting in Washington gave industrials a leg up to boost the Dow, but disappointment toward Facebook’s quarterly results weighed on tech to pressure the S&P 500 and the Nasdaq.

Treasury yields were higher following mixed economic data, while crude oil prices and the U.S. dollar gained ground and gold finished lower.

The Markets…

The Dow Jones Industrial Average (DJIA) increased 113 points (0.4%) to 25,527

The S&P 500 Index fell 9 points (0.3%) 2,847

The Nasdaq Composite declined 80 points (1.0%) to 7,852

In moderate volume, 812 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq

WTI crude oil increased $0.31 to $69.61 per barrel and wholesale gasoline added $0.03 to $2.12 per gallon

The Bloomberg gold spot price traded $8.70 lower to $1,222.93 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.4% at 94.76

Durable goods orders, jobless claims, trade balance and inventories miss estimates

June preliminary durable goods orders increased 1.0% month-over-month, compared to the Bloomberg estimate of a 3.0% increase, and May’s 0.4% decline was revised to a 0.3% decrease. Ex-transportation, orders were up 0.4% m/m, versus forecasts of a 0.5% rise and compared to May’s upwardly revised 0.3% gain. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, increased 0.6%, versus projections of a 0.5% gain, and the prior month’s figure was revised higher to a 0.7% increase from the initially reported 0.3% rise.

Weekly initial jobless claims increased by 9,000 to 217,000, versus the Bloomberg estimate calling for 215,000, with the prior week’s figure revised higher by 1,000 to 208,000. The four-week moving average decreased by 2,750 to 218,000, while continuing claims declined by 8,000 to 1,745,000, north of estimates of 1,733,000.

The advance goods trade balance widened to a deficit of $68.3 billion in June, from the unrevised $64.8 billion in May, and versus expectations of a $67.0 billion shortfall.

Preliminary wholesale inventories were unchanged m/m in June, versus forecasts of a 0.3% gain, and following May’s downwardly revised 0.4% increase.

Treasuries were lower, as the yield on the 2-year note was 3 bps higher at 2.69%, and the yields on the 10-year note and the 30-year bond increased 4 bps to 2.98% and 3.10%, respectively.

The week’s economic calendar will close out tomorrow with the first look (of three) at Q2 GDP, forecasted to show annualized quarter-over-quarter growth of 4.1% and personal consumption to have risen 2.9% q/q. The final University of Michigan Consumer Sentiment Index for this month will come later in the morning, with economists projecting a level of 97.1, matching the preliminary figure, and down from June’s final read of 98.2.

European equities higher after trade meeting and ECB decision, Asia finishes mixed

European equities traded higher after yesterday’s meeting between President Trump and European Commission President Juncker, with the two leaders agreeing to attempt to improve trans-Atlantic trade relations. Details of any proposed plan were thin, though reports from Bloomberg and the Wall Street Journal indicated that the solution may involve the European Union (EU) increasing imports of U.S. liquefied natural gas and soybeans in return for a pledge from the Trump administration to suspend the threat of an extra tariff on European cars.

Separately, the European Central Bank (ECB) met today and announced no changes to its current policy, as expected, with ECB president Mario Draghi holding a shorter-than-usual press conference following the conclusion of the meeting, where he reaffirmed his confidence in the euro area’s economic expansion, saying the economy “is proceeding along a solid and broad-based growth path,” despite trade uncertainties, per Bloomberg.

Central banks remain in focus globally, with yield curves being closely watched. And specific to the ECB, the market expects rate hikes to begin in a little over a year with a steady path of hikes to follow. The ECB is widely expected to end QE (quantitative easing) at the end of this year.

Stocks in Asia finished mixed following yesterday’s rally for U.S. equities and after the Trump administration and the European Union announced that they will immediately begin negotiations to improve trade relations. Japanese equities declined and the yield on the country’s 10-year government bond rose to its highest level in more than a year, reaching 0.1%. The moves developed amid some mild strength in the yen versus the U.S. dollar and as market participants pondered possible policy actions that the Bank of Japan may take next week when it meets.

Chinese stocks found pressure despite some weakness in the yuan, which under-performed most of its counterparts, with shares traded on both the mainland and in Hong Kong declining.

Reports from Bloomberg noted that the Chinese currency will likely be volatile in the coming months as the markets assess the U.S.-Sino trade relationship and whether additional tariffs may be implemented. Also, the People’s Bank of China is expected to ease a specific capital requirement to support lending at local financial institutions in meeting credit demand effectively, per Bloomberg.

Stocks in India extended a winning streak to five-straight sessions ahead of a heavy dose of corporate earnings results that are expected later today. Meanwhile, South Korea securities advanced, despite some continued strength in the won, and markets in Australia finished lower.

The S&P 500 just ended its longest stint in correction territory since 1984

The S&P 500 is back in business — at least for the moment. The broad-market benchmark ended its lengthiest period in correction territory in about 34 years, a move that may have bullish investors cheering and cracking open the bubbly.

On Wednesday, the S&P 500 soared 0.9% to 2,846.07, bursting above its Feb. 8 closing low of 2,581. Any finish above 2,839.10 would have officially marked a conclusion to the so-called correction. A decline of at least 10% from a recent top is typically how market technicians define an asset’s bearish corrective phase. A climb from a closing low of at least 10% is how some view an emergence from out of correction.

As of Tuesday’s close, the S&P 500 had been in correction for 115 sessions, which was its longest such period since the 122-session period back in August 1984.

Meanwhile, the Dow Jones Industrial Average remains mired in correction. It logged its 116th straight session in correction, which marks its longest such bearish period also since August 1984. The Dow finished Wednesday’s trade up 0.7% at 25,414.

Separately, the Nasdaq Composite Index ended at an all-time high, representing its fourth in July, finishing up 1.2% at 7,932.24.

Looking back at history, such lengthy corrections are extremely unusual. According to the data, of the past 20 corrections (including the ongoing one), only two lasted longer than 100 trading sessions. The average correction length since the inception of the S&P 500 is 51 trading days. The longest stretch in correction territory ever was a period of 229 trading days that ended in 1978.

An impetus for stock moves on Wednesday were widely attributed to news that the U.S. and the European Union struck a tentative agreement to ease trade tensions that have dogged investors and undercut stock-market sentiment for months. President Donald Trump during a news conference with EU official Jean-Claude Juncker in the White House Rose Garden said that EU and the U.S. are working toward zero tariffs. Trump said the efforts were an effort to “make trade fairer and more reciprocal.”

Facebook stock drops more than 20% after revenue forecast misses

Facebook Inc. stock plunged as much as 23% in the extended session Wednesday after the social-media giant missed analyst expectations for the top line and user growth — which was flat in the U.S. and Canada compared with the first quarter — but beat on the bottom line.

In the company’s earnings call with investors, Chief Financial Officer David Wehner disclosed that the social-media giant expects the revenue slowdown to continue. “Our total revenue growth rates will continue to decelerate in the second half of 2018, and we expect our revenue growth rates to decline by high single-digit percentages from prior quarters sequentially in both Q3 and Q4,” he said on the conference call. Wehner also said Facebook still expects expenses to grow 50% to 60% from last year.

The Menlo Park, Calif.-based company reported $5.12 billion in net income for the quarter, which amounts to $1.74 a share, widening from $3.89 billion or $1.32 a share in the year-ago period. The bottom-line beat was above analysts’ average estimate of $1.71 a share.

While the knee-jerk reaction will be negative on these mixed results, especially given the meteoric rise in shares from the March lows, we ultimately believe the advertising revenues and underlying [monthly/daily active user] metrics were ‘good enough’ and show the worries of a massive fundamental and user deterioration at Facebook post-Cambridge was more bark than bite at this point.

But Facebook recorded sales below analyst models. The company’s top line was $13.04 billion, weaker than $13.34 billion analysts expected, suggesting that the world’s largest social network has begun to feel some of the effects of the controversies that have battered it during the quarter. Facebook also missed its user growth expectations: The company reported 1.47 billion daily active users, while Wall Street expected 1.49 billion; it logged 2.23 billion monthly active users, as analysts expected 2.25 billion.

In the U.S. and Canada, Facebook’s most valuable geographic region, daily active user growth was flat at 185 million compared with the first quarter, the company said. Monthly active users also didn’t grow compared to the first quarter and remained steady at 241 million in the U.S. and Canada. Facebook members in those countries are worth $25.43 compared to Europe’s $8.76 per user, and the worldwide average of $5.97 per member.

The European user count slowed down too: Facebook said it had 376 million monthly users, compared with 377 million in the first quarter and 360 million in the year-earlier period. Monthly active users shrank from the first quarter to 279 million from 282 million in Europe.

Facebook reported Payments and Other Fee revenue of $193 million up from $157 million in the year-ago quarter. The June quarter included sales of its Oculus Go virtual reality headset, a cheap, standalone version of its Oculus Rift hardware that’s designed to work along side a gaming computer, as well as other products such as Marketplace.

On its fourth-quarter call earlier this year, executives said that “more than 700 million people each month now come to Facebook to buy and sell things” and that it launched the product in 41 countries throughout 2017.

In the past, Zuckerberg has said Facebook plans to hire 20,000 people to deal with safety and security on the site; the company on Wednesday disclosed that it employed 30,275 people, a 47% increase over the year-earlier period.

Facebook stock has gained 23% this year, as the S&P 500 index SPX, +0.91% rose 5.5%.

Market Insights 7/25/2018

U.S. equities jumped in the final half hour of trading to close near their highs of the day after Dow Jones Newswires reported that the meeting between President Trump and with European Commission President Jean-Claude Juncker produced an agreement on concessions secured from the EU to avoid a trade war.

New home sales fell more than expected in June and weekly mortgage applications declined. Treasuries turned lower following the trade agreement report and crude oil prices rose following bullish inventory data, while gold finished higher, and the U.S. dollar was modestly lower.

The Markets…

The Dow Jones Industrial Average increased 172 points (0.7%) to 25,414

The S&P 500 Index rose 26 points (0.9%) 2,846

The Nasdaq Composite jumped 91 points (1.2%) to 7,932

In moderate volume, 795 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil increased $0.78 to $69.30 per barrel and wholesale gasoline added $0.03 to $2.09 per gallon

The Bloomberg gold spot price traded $7.48 higher to $1,232.00 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 94.32

New home sales declined last month, a US/EU trade agreement report surfaces

New home sales declined 5.3% month-over-month in June to an annual rate of 631,000 units versus the Bloomberg forecast calling for 668,000 units and the downwardly-revised 666,000 unit pace in May. The median home price declined 4.2% y/y to $302,000. New home inventory increased to 5.7 months of supply at the current sales pace from 5.3 in May. Sales jumped m/m in the Northeast, but declined in the Midwest, South and West. New home sales are based on contract signings instead of closings.

The MBA Mortgage Application Index declined 0.2% last week, following the prior week’s 2.5% drop. The decrease came as a 0.9% rise for the Refinance Index was offset by a 1.0% decline in the Purchase Index. The average 30-year mortgage rate was unchanged from the previous week’s 4.77%.

In late-day action, Dow Jones Newswires reported, citing a European Union (EU) official, that President Trump had secured concessions from the EU in order to prevent a trade war, with the EU also agreeing to cut tariffs on industrial goods.

Treasuries turned on a dime following the trade agreement report to finish lower, as the yield on the 2-year note gained 4 basis points (bps) to 2.67%, while the yields on the 10-year note and the 30-year bond moved 2 bps higher to 2.97% and 3.09%, respectively.

Tomorrow is slated to be the busiest for the week’s economic calendar, beginning with weekly initial jobless claims, forecasted to increase by 8,000 to a level of 215,000, followed by preliminary wholesale inventories, with economists projecting a 0.3% m/m increase for June. Preliminary durable goods orders will also be reported, expected to show a 3.0% gain m/m during June for the headline rate, while ex-transportation and non-defense capital goods excluding aircraft are both anticipated to have risen 0.5% m/m. Rounding out the day will be the Kansas City Fed Manufacturing Activity Index, expected to move lower to 25 for July from the 28 posted in June, but still well above the level of zero that separates expansion from contraction.

Europe finish mostly to the downside, stocks in Asia close mixed

European equities finished mostly lower ahead of today’s meeting among U.S. President Trump and the European Commission President and the EU Trade Commissioner. The European Commission has been preparing a list of retaliatory tariff actions amounting to $20 billion if the U.S. imposes its previously announced levies on car imports. The Trade Commissioner said that the actions “would be more general, like farming goods, machines, high-technology products and others,” though yesterday, the Trump administration announced it would extend $12 billion in emergency aid for U.S. farmers suffering from tariffs.

The euro was mildly lower versus the U.S. dollar and the British pound ticked slightly higher against the greenback, while bond yields in the region were mostly lower.

Stocks in Asia finished mixed amid the ongoing trade developments between the world’s two largest economies and as the yuan stabilized a bit from its recent decline following China’s announcement earlier in the week that it will move toward a more dynamic fiscal policy.

Stocks in China were mixed, as those traded on the mainland dipped, while those listed in Hong Kong advanced, led higher by the services and energy sectors. Japanese equities increased on strength in steelmakers and other metal stocks and after the Bank of Japan left its bond purchase amounts unchanged on Wednesday. Shares in Australia were modestly lower, as Q2 CPI reads came in shy of forecasts, showing inflation remained subdued with a government report indicating that headline inflation was largely boosted by the spike in crude oil prices over the past 12 months.

Random Thoughts

The S&P 500’s performance in July has been stronger than normal within a midterm election year, rising more than 4% versus a typical gain of less than 1.0%.

This month’s advance places the “500” only about 1.5% below its January high. Stellar earnings have been the main driver, in our opinion, but investors have also been able to tune out much of the macro and geopolitical static that had unnerved them last month, causing the S&P 500 to tread water.

Investors likely put those issues on the back burner for now, rather than dismiss them altogether, as the administration’s possible imposition of a hefty tariff on hundreds of billions of dollars in foreign-made cars could cause the global economic growth to sputter, if not stall out.

Add to this the implication that consumer optimism is on less-than-solid footing, due to the weakness in recent new and existing home sales data, and uncertainty could become synonymous with volatility.

Market Insights 7/24/2018

U.S. stocks finished the regular trading session mostly higher as the Nasdaq erased gains after hitting an all-time high in early morning action and finished nearly unchanged despite solid earnings from Google parent Alphabet.

Treasury yields were mixed, the U.S. dollar was modestly lower and gold and crude oil prices traded to the upside.

The Markets…

The Dow Jones Industrial Average increased 198 points (0.8%) to 25,242

The S&P 500 Index ticked 13 points (0.5%) higher to 2,820

The Nasdaq Composite shed 1 point to 7,841

In moderate volume, 781 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil increased $0.63 to $68.52 per barrel and wholesale gasoline added $0.02 to $2.09 per gallon

The Bloomberg gold spot price traded $0.90 higher to $1,225.40 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% lower at 94.57

July manufacturing activity surprises to the upside

The preliminary Markit U.S. Manufacturing PMI Index showed expansion in output surprisingly expanded, ticking up to 55.5 in July from June’s 55.4 figure, and compared to the Bloomberg estimate calling for a decline to 55.1. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector slowed slightly this month, dipping to 56.2 from May’s 56.5 figure, where it was expected to remain. However, readings above 50 for both indexes denote expansion.

The Richmond Fed Manufacturing Activity Index for July remained at June’s level of 20, versus estimates calling for a dip to 18, with a reading above zero depicting expansion.

Treasuries finished mixed, as the yield on the 2-year note was 1 basis point (bp) higher at 2.64%, the yields on the 10-year note was nearly unchanged at 2.95% and the 30-year bond rate finished 1 bp lower at 3.08%.

Tomorrow, the U.S. economic calendar will deliver housing data in the form of new home sales for June, forecasted to have declined 3.1% m/m to an annual rate of 668,000 units, as well as the weekly MBA Mortgage Applications report.

Europe mostly higher on earnings and data, Asian markets led higher by China

European equities finished mostly higher, amid upbeat results out of the financial sector, and following better-than-expected manufacturing reports across the region. The Markit Manufacturing PMI indexes for Germany, France and the Eurozone came in above forecasts across the board, while Service sector reads were mostly in line with expectations.

The Stoxx Europe 600 Banks Index was up 2.3%, notching its largest gain in six weeks. Automakers remained in focus, as European Commission President Jean-Claude Juncker is set to meet with President Trump on Wednesday, where he is expected to present a multi-faceted trade deal on autos and auto parts in the hopes of tempering trade tensions between the allies. The meeting comes following the G20 summit over the weekend that failed to produce a significant agreement on trade.

The U.K. FTSE 100 Index was up 0.7%, France’s CAC-40 Index rose 1.0%, Germany’s DAX Index gained 1.2%, and Spain’s IBEX 35 Index was 0.5% higher, while Switzerland’s Swiss Market Index reversed course to finish 0.1% lower.

Mainland Chinese stocks rallied, marking a third-straight session of gains, after the nation’s State Council said that it will employ “vigorous” fiscal policy measures as its economy cools. The yuan hit its lowest level in more than a year following a record injection of funding for banks from the government, and on news the Asian nation will expand its infrastructure spending. Meanwhile, shares trading in Hong Kong finished higher, getting a boost from financials, and property-related stocks.

Japanese equities gained ground, paring some of the solid losses that the index saw yesterday, as most sectors posted gains, and despite a modest rebound in the yen and a 20-month low in the island nation’s manufacturing PMI. Focus on the Bank of Japan carried over from yesterday’s report that the Central Bank was involved in “unusually active discussions” ahead of its July monetary policy decision, including the notion of paring its stimulus measures. However, new press reports in the wake of the market’s reaction yesterday tempered any likelihood of a major policy shift.

South Korean shares traded to the upside amid a mix of corporate results, Australian securities were higher, and Indian equities also advanced.

Market Insights 7/23/2018

U.S. stocks overcame a mild early decline and finished the trading session mostly higher ahead of some key quarterly earnings results later in the week.

The U.S. dollar ticked to the upside and Treasury yields also gained ground as the existing home sales report for June showed a slightly larger-than-expected decline for the month.

Crude oil prices traded lower amid some rhetoric between the U.S. and Iran and gold experienced a minor decline.

After the closing bell, Alphabet Inc. (GOOGL) announced Q2 earnings-per-share (EPS) of $11.75 ex-fines, above the FactSet estimate of $9.64, with gross revenue of approximately $32.7 billion.

The Markets….

The Dow Jones Industrial Average shed 14 points (0.1%) to 25,044

The S&P 500 Index increased 5 points (0.2%) to 2,807

The Nasdaq Composite gained 22 points (0.3%) to 7,842

In moderately light volume, 669 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq

WTI crude oil declined $0.37 to $67.89 per barrel and wholesale gasoline added $0.02 to $2.09 per gallon

The Bloomberg gold spot price traded $4.65 lower to $1,224.89 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 94.63

Existing home sales unexpectedly dip

Existing-home sales in June declined 0.6% month-over-month to a 5.38 million annual rate, the third-straight monthly decrease, compared to the Bloomberg forecast of a 5.44 million pace, and versus May’s downwardly revised 5.41 million rate. Sales of single-family homes declined 0.6% m/m, and were 2.3% below year-ago levels, while purchases of multi-family structures were unchanged from May, and were down 1.6% y/y.

The median existing-home price was up 5.7% y/y at an all-time high of $276,900, marking the 76th straight month of gains. Unsold inventory came in at a 4.3-months pace at the current sales rate, up from 4.2 months a year ago. Inventory of homes for sale increased 4.3% m/m, and was 0.5% higher y/y, the first y/y increase since June 2015. Sales declined in the South and the West, and were up in the Northeast and Midwest. Existing home sales account for the majority of the housing sales market.

Lawrence Yun, Chief Economist at the National Association of Realtors (NAR) that releases the report, said, “There continues to be a mismatch since the spring between the growing level of homebuyer demand in most of the country in relation to the actual pace of home sales, which are declining,” adding, “The root cause is without a doubt the severe housing shortage that is not releasing its grip on the nation’s housing market. This dynamic is keeping home price growth elevated, pricing out would-be buyers and ultimately slowing sales.”

Treasuries finished lower, as the yield on the 2-year note was 4 basis points higher at 2.63%, and the yields on the 10-year note and the 30-year bond advanced 7 bps to 2.96% and 3.10%, respectively.

Today’s data kicked-off this week’s economic docket that will likely take a back seat to the continued ramping up of earnings season, but will provide some key reads on housing, economic output and the consumer. Reports slated for release include June new home sales and tomorrow’s release of Markit’s July business activity reports, while the week will be closed out by the first look (of three) at Q2 GDP, preliminary June durable goods orders, and the final University of Michigan Consumer Sentiment Index for this month.

Tomorrow’s U.S. economic calendar will also include the release of the Richmond Fed Manufacturing Index for July, which is forecasted to tick lower to a level of 18 from 20 the month prior, though a reading above zero indicates expansion in activity.

Europe lower on trade worries, Asia mixed to kick off the week

European equities finished lower, with automakers the worst performers amid trade concerns and some surprising news from the sector. European Commission President Jean-Claude Juncker will be traveling to the White House in an attempt to persuade U.S. officials not to follow through on proposed tariffs on European automakers. The meeting comes following the G20 summit over the weekend that failed to produce a significant agreement on trade.

Political uncertainty remained, as Brussels rejected the U.K.’s financial services Brexit plan, and the People’s Party in Spain elected a new leader. The euro and British pound were lower versus the U.S. dollar, while bond yields in the region were mixed.

Stocks in Asia finished mixed to start the week, with Japanese equities feeling the brunt of the pressure amid a rise in the yen on weakness in the U.S. dollar, while trade uncertainty remained a focus, exacerbated by comments from President Trump that China and the European Union, among others, have been manipulating their respective currencies.

Japanese equities tumbled as the yen gained strength in the wake of President Trump’s recent criticism of the Federal Reserve, and following a Reuters report that the Bank of Japan was involved in “unusually active discussions” ahead of the Central Bank’s July monetary policy decision, including the notion of paring its stimulus measures.

Chinese stocks reversed early losses to finish solidly higher, getting a boost from banks and industrials, while shares trading in Hong Kong also ticked to the upside, with steep losses in tech shares being offset by gains in materials, financials and property-related stocks. South Korean securities found pressure from blue chip tech stocks. Lastly, Indian equities traded higher and Australian shares finished lower.