The Week In Review



Stocks eked out a slim victory on Friday following a range-bound day of trading on lighter-than-usual volume. The S&P 500 (+0.1%) hit some technical resistance at the 2800 level, which it hasn't been able to conquer since early February. The Dow Jones Industrial Average (+0.4%) did modestly better, and the Nasdaq Composite finished flat.

Big banks, including JPMorgan Chase (JPM 106.36, -0.49), Citigroup (C 67.00, -1.51), and Wells Fargo (WFC 55.36, -0.67), unofficially kicked off the Q2 earnings season Friday morning. The results were mixed; JPMorgan and Citi beat profit estimates, but Well Fargo came up short. The three lenders slid between 0.5% and 2.2% in the aftermath, and the influential financial sector declined 0.5%.

The top-weighted technology space also lagged, finishing a tick below its unchanged mark. Within the space, Dow component Cisco Systems (CSCO 41.78, -1.80) dropped 4.1% following news that Amazon (AMZN 1813.03, +16.41) is mulling entry into the data switches market; AMZN rallied 0.9%, hitting a new record high.

Meanwhile, telecom services (-0.8%) was the worst performer, led lower by AT&T (T 31.67, -0.56), which lost 1.7% following news that the DOJ has appealed the company's acquisition of Time Warner.

On the flip side, industrials (+0.6%), energy (+0.6%), and consumer staples (+0.6%) finished at the top of the sector standings. The energy space was helped by a rebound in the price of crude oil, which plunged 5.0% on Wednesday. WTI crude futures advanced 1.1% on Friday to $71.03 per barrel.

President Trump was in the UK on Friday, fielding questions from reports in a joint press conference with Prime Minister Theresa May and stopping for tea with Queen Elizabeth II. Mr. Trump reaffirmed the United States' "special relationship" with the UK and said the U.S. will pursue a free trade deal with the UK once it leaves the EU.

U.S. Treasuries rallied on Friday, pushing yields lower across the curve; the yield on the benchmark 10-yr Treasury note slipped two basis points to 2.83%. Meanwhile, the U.S. Dollar Index finished slightly lower (-0.1%) at 94.47, and the CBOE Volatility Index declined 2.9% to 12.22.

Reviewing Friday's economic data, which included June Import/Export Prices and the preliminary reading of the University of Michigan Consumer Sentiment Index for July:

  • Import prices slid 0.4% in June after rising a revised 0.9% in May (from +0.6%), and import prices excluding oil slid 0.3% in June after rising an unrevised 0.2% in May. Export prices increased 0.3% in June after rising an unrevised 0.6% in May, and export prices excluding agriculture rose 0.4% in June after rising a revised 0.6% in May (from +0.5%).
    • The key takeaway from the report is that the year-over-year changes show an uptick in inflation trends, just like the PPI and CPI reports for June did.
  • The preliminary reading of the University of Michigan Consumer Sentiment Index for July slipped to 97.1 ( consensus 97.8) from 98.2 in June.
    • The key takeaways from the report are twofold: (1) it revealed negative concerns about the impact of trade tariffs are rising among the top third of the income distribution, who account for half of consumer spending and (2) consumers under the age of 45 are anticipating the largest income gains since July 2000.

Looking ahead, investors will receive on Monday the Retail Sales report for June, the Empire State Manufacturing Index for July, and the Business Inventories report for May. Bank of America (BAC) and BlackRock (BLK) will report earnings before the open, and Netflix (NFLX) will report after the close.

  • Nasdaq Composite +13.4% YTD
  • Russell 2000 +9.9% YTD
  • S&P 500 +4.8% YTD
  • Dow Jones Industrial Average +1.2% YTD

Week In Review: Entering Earnings Season on a Positive Note

Wall Street advanced for the second week in a row, with the Nasdaq (+1.8%) touching a new record and the S&P 500 (+1.5%) hitting its best level since the big drop in early February. The Dow Jones Industrial Average (+2.3%) outperformed its peers, returning to positive territory for the year, but the small-cap Russell 2000 (-0.4%) struggled.

Stocks started the week on a positive note, rallying on Monday and Tuesday, but sold off on Wednesday after the White House escalated its ongoing trade dispute with Beijing, publishing a new list of tariffs. This round of duties is the largest yet, calling for a 10% tariff on $200 billion worth of Chinese goods, but it won't be official for at least two months. As it did with earlier tariffs, China promised to retaliate.

Meanwhile, NATO leaders held a two-day summit in Brussels this week. President Trump dominated the headlines, criticizing Germany for approving a major gas deal with Russia and taking a hard stance on increased military spending. Member states recommitted to a military spending target of 2% of GDP by 2024, prompting Mr. Trump to verbally confirm his commitment to the alliance.

The U.S. president then jetted to the UK for a meeting with Prime Minister Theresa May. Before the meeting, Mr. Trump suggested that Ms. May's Brexit plan may prevent the U.S. from entering a bilateral trade deal with the UK, but he walked back those comments in a latter press conference, reaffirming the leaders' "special relationship."

Back on the home front, West Texas Intermediate crude futures tumbled from a three-and-a-half year high on Wednesday, plunging 5.0% in their worst daily performance in over a year. Investors shrugged off a bullish inventory report -- which showed a huge drop of 12.6 million barrels for the week ended July 6 -- and instead focused on resurgent Libyan supply and increased June output for Saudi Arabia.

The energy sector, which is sensitive to crude prices, finished behind the broader market, but still added 0.8%. Eight of eleven spaces finished the week in the green, with information technology (+2.3%), consumer discretionary (+2.1%), and industrials (+2.2%) being the top performers. Utilities (-1.2%), telecom services (-1.6%), and real estate (-0.8%) were the three decliners.

In corporate news, big banks JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) unofficially kicked off the second quarter earnings season on Friday with mixed results; JPMorgan and Citigroup beat earnings estimates, but Wells Fargo missed. The financial sector lost 0.5% on Friday, but still finished the week with a gain of 1.1%.

Elsewhere, 21st Century Fox (FOXA) lost 4.0% on Wednesday following reports that Comcast (CMCSA) may forego countering Disney's (DIS) offer for Fox's entertainment assets and focus on upping its bid for British media company Sky instead; Broadcom (AVGO) tumbled 13.7% on Thursday after agreeing to acquire software company CA Tech (CA) for approximately $18.9 billion in cash; and AT&T (T) lost 1.7% on Friday after the Department of Justice appealed the company's acquisition of Time Warner.

In the bond market, U.S. Treasuries moved lower in another curve-flattening trade this week, bringing the 2-10 spread down two basis points to 26 bps -- its lowest level in more than a decade. The yield on the benchmark 10-yr note ticked up one basis point to 2.83%, while the yield on the 2-yr note climbed three basis points to 2.57%.

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