Equities, in general, are taking a bit of a breather as it digests the U.K.’s exit from the EU, second quarter earnings from some of the country’s bellwethers and the Federal Reserve Bank’s ongoing anxiety to raise interest rates. This period of market indecision – and low volume – may continue through the remaining months of the summer. Such a pause, sometimes referred to as a consolidation period, is not all that bad following what has been a major run since mid-February. For the week, the Dow shed 0.75% and the S&P 500 was virtually flat. The tech-heavy NASDAQ moved higher by 1.2%, as technology stocks were leaders up by 2% on average along with a few bio-tech names. However, most sectors were in the red especially oil and gas stocks and the utilities (which have had a nice run). Oil prices plummeted to around the $40/bbl. mark before recovering slightly to close the week at $41.60 or $2.59/bbl. lower than where it ended last Friday. Gold, however, continued it torrid pace moving up $26/oz. to another multi-year record of $1,349.
There were no surprises that the Fed held interest rates steady at their mid-week meeting, but opened the door for a possible hike in September with the thinking that “near-term risks to the economic outlook have diminished”. However, on Friday, the Commerce Department reported GDP growth of only 1.2% in the second quarter, well below the anticipated 2.6%, and revised the first quarter downward with a year-to-date cumulative growth rate of just 1%.
Quarterly results are still rolling in and have been more positive than negative on average beating lowered expectations, although mostly down from last year’s results. Guidance for the rest of the year has also been less than robust, with few exceptions. Nonetheless, Wall Street has been taking these results in stride. This week we will hear from CVS Health, which is expected to report earnings per share of $1.30 vs. $1.22, but the shares have been lagging of late. We will also get a sense of the employment picture for July with non-farm payrolls expected to level off at around 175,000 following a volatile May and June. And the summer Olympics begin in Rio on Friday. Enjoy the games.
Here is the answer to last week’s trivia question: Plummeting and negative interest rates overseas are helping to distort which popular gauge of the U.S. economy’s health? The yield curve; Fed-funds futures; Consumer Confidence Indicator or the Consumer Price Index. Answer: The yield curve. The gap between short-term and long-term U.S. Treasury yields recently narrowed to its flattest point since 2007.
Today’s Trivia Question: In October of last year, Google, Inc. changed its corporate name to? Google Internet Services Co., The Chrome Group, Alphabet, Inc., or Mountain View Technologies Corp.