More weakness is creeping into the market on a technical basis, but it’s not generally being seen at the index level. However under the surface some things are brewing. See this chart of the % of stocks in the NASDAQ above their 50 day moving average. This was near 70% six weeks ago, now it’s nearer to 40% despite the NASDAQ being near all time highs. Food for thought.
Some good news mid week on the TRADE WARS ™!!! front:
The eurozone and Washington agreed to lower industrial tariffs on both sides and increase liquefied natural gas and soybean exports to Europe, with an agreement to avoid tariffs on European auto makers also in the works, according to the Wall Street Journal.
The earnings avalanche continued. It was expected to be a very strong quarter – and thus far it is.
As of Friday, just over 52% of S&P 500 components have reported. EPS growth is seen coming in at 21.35%, while sales are expected to be up 9.1%.
The European Central Bank left interest rates unchanged and affirmed its plan to end its monthly bond-buying program in December, as had been expected.
The stock of the week was obviously Facebook (FB) which sunk 19% Thursday after the company revealed lower-than-expected quarterly revenue, slowing user growth and weak guidance. It was the biggest one day percentage drop, wiping out about $120 billion of market value in a single day, the largest in history.
Facebook recorded sales of $13.04 billion, a 41.9% increase from a year ago, but that was lower than analyst estimates and previous growth rates. User growth was flat in the U.S. and Canada, and declined in Europe from the previous quarter.
“Our total revenue-growth rates will continue to decelerate in the second half of 2018, and we expect our revenue-growth rates to decline by high-single-digit percentages from prior quarters sequentially in both Q3 and Q4,” Chief Financial Officer David Wehner said on the conference call.
Economic news was not market moving but it was worth noting the GDP figure for quarter 2 as a combination of tax cuts, and export activity being pushed out ahead of potential tariffs led to a potent cocktail. Keep in mind the offset to this “great news” is trillion dollar deficits in the soon to be near future – and that’s during economic expansion; forget what is going to happen in a recession.
Consumers and government spending powered the economy to a 4.1% rate of gross domestic product growth in the second quarter, the fastest pace of growth in almost four years, although it was slightly below the 4.2% rate predicted.
For the week the S&P 500 gained 0.6% while the NASDAQ dropped 1.1%.
Here is the 5 day weekly “intraday” chart of the S&P 500 … via Jill Mislinski.
The week ahead…
Another massive week of S&P 500 earnings. Friday brings us the July payroll report, which is expected to show 213,000 jobs added in the month. The Federal Reserve has a two day policy meeting. No movement is expected at this meeting.
Short term: Some divergence this week as the NASDAQ had been leading this move while the S&P 500 lagged; now the S&P 500 outperformed this week.
The Russell 2000 bearish “double top” is still holding.
The NYSE McClellan Oscillator stayed in the red for a second week so those with a shorter term outlook should be more cautious for now.
Long term: Still very positive for the “buy and never sell” crowd.
Charts of interest / Big Movers:
Monday, Hasbro (HAS) jumped nearly 13% after it reported second-quarter results that easily topped forecasts.
Papa John’s (PZZA) had a rough week – the stock was downgraded to sell at Stifel Nicolaus Monday as the firm also cut its price target on the stock to $38 from $50. The pizza company has been volatile of late, following revelations that the company’s founder used a racial slur during a recent conference call.
Alphabet (GOOG) jumped 3.9% Tuesday, a day after it reported results that topped expectations.
Alphabet Inc. shares soared to new record levels Tuesday morning, as second-quarter earnings smashed expectations after accounting for a record antitrust fine out of Europe. Without the fine, Alphabet would have reported earnings of $11.75 a share, the company said, well higher than analysts’ average estimate of $9.64 a share.
Also Tuesday Whirlpool (WHR) plummeted 15% after the appliance maker surprised by swinging to a quarterly loss with lower sales and a downbeat outlook on revenue.
Advanced Micro Devices (AMD) surged 14% Thursday after the chip maker reported revenue that grew more than expected. Heck of a year for this stock.
Supervalu (SVU) skyrocketed 65% to $32.17 after United Natural Foods (UNFI) said it would buy the company for about $2.9 billion. Seems like a crazy premium.
Intel (INTC) sank 8.6% Friday after the chip giant’s earnings, revenue and upbeat outlook surpassed Wall Street forecasts late Thursday, but quarterly revenue growth for its best-growing segment fell short of expectations.
Twitter (TWTR) tumbled 21% after it reported its second-quarter results and gave a third-quarter outlook that was below forecasts.
Have a great week and we’ll see you back here Sunday!