August 8th – Weekly Update

  • After a promising jobs report, U.S. equities rebounded from a midweek dip influenced by the Bank of England’s (BOE) unprecedented interest rate cut. The major U.S. and U.K. indexes posted gains, but Asian and European bourses were down for the week. Gold dove following positive employment numbers. Oil rose modestly after another volatile week. The 10-year U.S. Treasury gained traction from the strong jobs report, settling near 1.6%.
  • With 86% of S&P 500 companies having reported second quarter results, 69% have beaten earnings expectations while 54% have beaten sales expectations. According to FactSet, the second quarter blended earnings decline stands at -3.5%, compared to the July 1 forecast of -5.3%. If the index reports negative earnings growth for the quarter, it will mark the fifth consecutive quarter of decline, the first such string since 3Q08–3Q09. CVS, Avon and Etsy impressed this week; Delta Air Lines, Royal Caribbean and GNC were among the disappointments.
  • The U.S economy added 255,000 new jobs in July with May and June revised to include an additional 18,000 jobs. The unemployment rate stood unchanged at 4.9%. At $25.69, average hourly nonfarm private earnings increased 2.6% compared to a year prior.
  • The Markit U.S. manufacturing purchasing managers’ index (PMI) rose to 52.9 in July from 51.3 in June, signifying an improved business environment and potential for economic growth in the second half of the year. According to the U.S. Department of Commerce, personal incomes were also up from June to July by 0.2%.
  • The BoE reinstated its long-dormant quantitative easing program and slashed interest rates from 0.50% to 0.25%, the lowest in the bank’s history, citing intent to cut them closer to zero over coming months. In the lead up to the BoE’s action, U.K. retail sales fell 0.9% during the five weeks prior to July 2 – the largest monthly decline in six months.
  • Markit euro zone retail PMI reflected a struggling retail sector, coming in below a neutral rating of 50 for the fourth time in five months. July’s rating was 48.9 compared to 48.5 in June.

CPWM Weekly Market Monitor (2016.08.08)