The two major market indicators set new all-time highs this week. The Dow Industrial Average closed at 18,517, up 2% and the S&P 500 Index moved higher by 1.5% to 2,162. After suffering in a one-year trading range, equities finally broke out to the upside along with decent volume. For the year, the Dow is solidly in the green by 6.25% and the S&P by 5.7%. The NASDAQ, however, has lagged and is slightly higher by less than 1%. For the week, all market sectors were gainers with the exception of utilities, which are taking a breather after a 23% run up this year. Basic material stocks led the pack advancing about 4.5% and financials and transportation stocks were also strong.
An upbeat Beige Book economic report issued by the Federal Reserve, showed most areas of the country continue to see modestly better business trends. Accordingly, prospects for the second half are looking better. In fact, following a tepid initial-period gross domestic product rise of 1.1% and a presumptive second-quarter gain of better than 2%, growth in the later part of the year can possibly make another leg up. While a robust housing market and strength in employment may suggest that an interest rate hike is warranted, global uncertainties are keeping a Federal Reserve move in check for now.
Looking ahead, earnings season will be in full force over the next few weeks and surprises and guidance can move markets from day-to-day. On Tuesday, Johnson & Johnson will report second quarter results a few pennies per share below last year’s $1.71. Intel will report on Wednesday ($0.53 vs. $0.55) along with Newmont Mining with expectations of $0.29 per share compared to $0.26 in the second quarter of 2015. And on Friday, energy service provider Schlumberger will do well to report $0.21 vs. $0.88, as oil and gas companies continue to curtail production. For now, the path of least resistance for stocks in this low-interest rate environment is probably higher.
Here is the answer to last week’s trivia question: The prime rate is the interest rate commercial banks charge their most credit worthy customers, and is largely determined by the Federal Reserve’s rate to banks and is used as a basis for fixing other lending rates. Currently, the prime rate is? 2.9%, 5.2%, 3.5% or 4.25%. Answer: 3.5%.
Today’s Trivia Question: The most profitable U.S. company is Apple with 2015 net profits of $53.4 billion. Which company comes in second? ExxonMobil, Walmart, Berkshire Hathaway or JPMorgan Chase.