Second quarter earnings continued to roll in quite nicely this week, but traders remained focused on the Federal Reserve’s next move. The S&P 500 and the Nasdaq Composite Indexes reached new all-time highs. Boeing and Caterpillar, however, put a damper on the Dow Industrial Average, but it is still within 126 points of a record high. For the week, the Dow inched up 0.14%, while the S&P climbed nearly 1.7% and the Nasdaq surged 2.3%. Small-cap stocks made a bit of a comeback as the Russell 2000 climbed 2% and the S&P Small and Mid-Cap Indexes soared over 2.3%. Transports were also strong for the week, thanks in part to bellwether UPS. Except for utility and energy stocks, all market sectors were in the green led by technology (up 3.4%) with a strong semiconductor showing. Telecom and financial stocks were also higher by 2.9% and 2.3%, respectively.
GDP slowed to 2.1% in the second quarter with continued low inflation, suggesting that the FOMC will likely take some monetary measures to ramp up the economy. Wall Street has already baked in a 25-basis-point cut to the fed funds rate to 2% to 2.25%. Business is indeed slowing down, with the latest data showing a flattening in industrial production, uneven trends in housing sales and a decline in the leading indicators – the first such setback since last December. The moderating pace of activity likely will continue in the second half, with the expected lowering of rates over the next year designed to prevent a more serious slowdown thereafter. The Fed may also be looking overseas (where growth is stumbling), and at the inability to lessen trade tensions, even as key talks are to resume with China, as justification for cutting rates now.
More earnings are on tap for the week as we hear from aggressive candidates Gilead Sciences and Marathon Petroleum and income choice LyondellBasell. Income and conservative holding Verizon Communications will also report this week with estimates of flat earnings for the second quarter. With the prospect of lower interest rates and overall earnings strength, Wall Street’s outlook is sufficiently bright for investors to stay in the game even with the occasional corporate swings and misses.
Here is the answer to last week’s trivia question: The Apollo 11 Lunar Module TV camera used to capture the first steps on the moon was designed and built by? RCA, Harris Corp., Raytheon or Westinghouse. Answer: Frank from New Jersey got it right – The Electronic Systems Division of Westinghouse Electric, now part of Northrop Grumman’s Mission Systems business. Grumman designed, assembled, integrated and tested the Lunar Module at its Bethpage, NY facility.
Today’s Trivia Question: Which brand is NOT part of Whirlpool Corp.’s family of appliances? Amana, Frigidaire, Kitchen Aid or Hotpoint.