Domestic markets ended last week in positive territory, while international stocks were in the red. Once again, trade and corporate earnings were in the news last week. We learned that the U.S. is considering increasing tariffs on $200 billion of Chinese imports. In response, China announced their own tariffs ranging from 5%–25% on $60 billion of U.S. products.
Corporate earnings season also continued, and so far, more than 78% of S&P 500 companies have beaten estimates. If the trend holds, the 2nd quarter will likely average more than 20% growth in earnings per share. Companies have also detailed positive perspectives for the rest of 2018, showing that this strong corporate performance should continue.
Of course, last week’s trade and earnings weren’t the only topics on investors’ minds. We also received a number of data reports that shaped our understanding of the economy’s health.
Key Findings from Last Week
• Consumers are earning and spending more.
The latest data for personal consumption and personal income revealed both measures increased by 0.4% in June. In addition, the report included revised data from 2013–2017, which indicated that people earned $1.05 trillion more during that time period than initially thought.
• Tariff concerns are affecting manufacturing.
The manufacturing sector continues to expand at a faster rate than in 2017, but the pace of growth slowed more than anticipated in July. Respondents to the ISM Manufacturing Index survey shared concerns about tariffs, steel and aluminum disruptions, and transportation challenges.
• The Federal Reserve is on track for a September rate hike.
The Fed didn’t raise rates this month, but projections show a 93.6% chance that it will do so in September. The latest jobs report detailed steady wage increases, which helped ease Fed concerns about inflation.
The big news in stocks last week was the 20% drops for both Facebook and Twitter and Apple hitting the $1 trillion mark. Most of the tech sector seemed to catch a cold last week.
But here’s a little perspective:
Both Facebook and Twitter had been on phenomenal runs for the year (with Twitter nearly doubling). Both companies are reinventing their privacy rules. And both companies are taking on the ‘fake news’ problem.
In short, both companies are modifying their business models — and the impact is significant enough to warrant a re-evaluation by analysts. This appears to be what the markets have done – re-evaluated pricing, and adjusted down for the short-term as these giants figure out how to deal with these new challenges.
Does this contagion spill over to the entire market? A little… particularly because Facebook has grown to a point that it has a material impact on indexes. Does it indicate a systemic problem? Probably not.
Apple also became the first company in history to reach $1 trillion in market capitalization last week. What does that mean at this point? Not a whole lot other than they have a target on their back and will probably be the most scrutinized company on Wall Street for a time to determine whether or not they deserve the title.
So now what?
There are a lot of big names to report earnings this week. If the profit numbers are solid, we probably see this market grind higher. It’s still fighting some political headline risk. But the overall backdrop is still stock-favorable. If you have any questions about where the economy is today or what may lie ahead, we’re here to talk.
Thursday: Jobless Claims
Friday: Consumer Price Index
This day in history:
On this day in 1945, at 8:16 a.m. Japanese time, an American B-29 bomber, the Enola Gay, drops the world’s first atom bomb, over the city of Hiroshima. Approximately 80,000 people are killed as a direct result of the blast, and another 35,000 are injured. At least another 60,000 would be dead by the end of the year from the effects of the fallout.
Quote of the week:
“If plan A fails, remember there are 25 more letters.”
— Chris Guillebeau
PUBLISHED BY NICK TOADVINE