The Week In Review

7/27/18

Stocks started Friday stable, but began tumbling in the afternoon, with tech shares pacing the broad-based retreat.

The tech-heavy Nasdaq dropped 1.5%, ending the week lower by 1.1%. The S&P 500 and the Dow also declined, losing 0.7% and 0.3%, respectively, but managed to keep in positive territory for the week (+0.6%; +1.6%). The small-cap Russell 2000 underperformed (-1.9%), extending its weekly loss to 2.0%.

All eyes were on Amazon (AMZN 1817.27, +9.27) coming into Friday's session, with investors hoping that its better-than-expected Q2 earnings report could restore some faith in FAANG names, which lost a lot of momentum on Thursday due to Facebook's (FB 174.89, -1.37) earnings-induced plunge.

Amazon was up around 4.0% in pre-market trading, but weakened substantially intraday, trimming its gain to just 0.5% by the closing bell. The petering out didn't do much good for the bulls, which, just a few days ago, were looking to ride another FAANG-led rally back into record territory.

The top-weighted technology sector finished a ways behind the ten other groups on Friday, losing 2.0%. Intel (INTC 47.68, -4.48, -8.6%) weighed heavily on the group as concerns over its slow roll out of next-generation chips overshadowed its better-than-expected Q2 earnings report. Twitter (TWTR 34.12, -8.82) was also a drag on the tech space, plunging 20.5%, after reporting a decline in monthly active users and disappointing guidance.

No other sector lost more than 0.9%, and three groups -- financials (+0.2%), consumer staples (+0.2%), and telecoms (+1.9%) -- actually finished in the green.

Health care (-0.7%) ended near the bottom of the sector standings, with Merck (MRK 63.49, -0.52, -0.8%) slipping despite upbeat earnings results. Energy (-0.5%) was another decliner following a mixed post-earnings performance from Chevron (CVX 125.97, +2.02, +1.6%) and Exxon Mobil (XOM 81.92, -2.32, -2.8%).

Elsewhere, U.S. Treasuries finished the week with a modest rally, pushing yields lower across the curve; the benchmark 10-yr yield slipped two basis points to 2.96%. Meanwhile, WTI crude futures broke a three-day win streak, dropping 1.3% to $68.72/bbl, and the U.S. Dollar Index ticked down 0.1% to 94.45.

Reviewing Friday's economic data, which included the preliminary reading of Q2 GDP and the final reading for the July University of Michigan Consumer Sentiment Index:

  • Advance second quarter GDP pointed to an expansion of 4.1%, in line with the Briefing.com consensus, and the prior month's reading was revised to 2.2% from 2.0%. The GDP Deflator came in at +3.0%, which is above the Briefing.com consensus estimate of 2.1%.
    • The key takeaway from the report is that real GDP growth was the strongest it has been since the third quarter of 2014. The key concern for some, though, is that it may not be sustainable given that export growth was likely juiced by pre-tariff activity.
  • The final reading of the University of Michigan Consumer Sentiment Index for July ticked up to 97.9 (Briefing.com consensus 97.1) from 97.1 in the preliminary reading.
    • The key takeaway from the report is that confidence remained at high levels due to favorable job and income prospects, offsetting growing concerns it seems about the potential impact of tariffs on the domestic economy.

Looking ahead, investors will receive Pending Home Sales for June on Monday.

  • Nasdaq Composite +12.1% YTD
  • Russell 2000 +8.3% YTD
  • S&P 500 +5.4% YTD
  • Dow Jones Industrial Average +3.0% YTD

Week In Review: Facebook Flop Steals Trade-Deal Thunder

Stocks moved mostly higher this week, sending the S&P 500 within 1.5% of its January 26 record high, with investors focused on a potential U.S.-EU trade deal and the latest batch of Q2 earnings, which featured results from high-flying FAANG names like Facebook (FB), Amazon (AMZN), and Alphabet (GOOG).

The S&P 500 advanced 0.6%, and the Dow Jones Industrial Average climbed 1.6%. The tech-heavy Nasdaq struggled, however, losing 1.1%, due in large part to Facebook's 19% plunge on Thursday -- which marked the biggest-ever one-day drop in market value for a U.S.-listed company (-$119.1 billion).

Facebook tumbled in response to its Q2 earnings report, which showed below-consensus revenues and slowing user growth, due in part to the #DeleteFacebook movement following the Cambridge Analytica data scandal. In addition, the social media giant also issued below-consensus revenue guidance. However, Google's parent company Alphabet and internet-retail behemoth Amazon helped balance things out with better-than-expected results.

Still, the top-weighted technology sector, which houses most FAANG names, was the worst-performing group this week, diving 1.2%. Conversely, financials was among the top-performing spaces with a gain of 2.0%, benefiting from a rise in interest rates; the yield on the benchmark 10-yr Treasury note climbed six basis points to 2.96%.

On the data front, the preliminary reading for second quarter GDP showed an annualized increase of 4.1%, in line with the Briefing.com consensus estimate and the best reading since the third quarter of 2014. Consumer spending was the main engine of growth, increasing 4.0% and contributing 2.69 percentage points.

In politics, President Trump met with European Commission President Jean-Claude Juncker at the White House on Wednesday. Stocks spiked that afternoon on headlines that Mr. Trump has secured trade concessions from the EU, including a pledge to import more soybeans and natural gas from the U.S. and to improve market access for U.S. medical devices. The two sides also decided to table auto tariffs while they continue to negotiate.

The European Central Bank decided on Thursday to keep its key policy rate unchanged, as expected, and reiterated that net asset purchases will likely cease at the end of December, with the reinvestment of principal payments continuing for an extended period of time thereafter.

Looking ahead, the Federal Reserve will release its latest policy directive on Wednesday. The market isn't expecting a rate hike, but investors will be interested to see what the central bank has to say about future rate increases this year; currently, the market is anticipating two additional hikes by year's end.

Headlines provided by Briefing.com