July 25th – Weekly Update

  • Stocks advanced during the week after the European Central Bank (ECB) disappointed investors with a balk on further stimulus. U.S. and European markets lost ground but Asian bourses posted slight gains. Oil was down for the week while gold tumbled to a three-week low with a modest recovery. The 10-year U.S. Treasury yield reached its highest level of four weeks.
  • With 25% of S&P 500 companies having reported first quarter results, 6.7% have beaten earnings expectations while 57% have beaten sales expectations. According to FactSet, the second quarter blended earnings decline stands at -3.7%, 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. Microsoft, General Electric and eBay impressed this week; Southwest Airlines, Kellogg and Hasbro were among the disappointments.
  • ECB declines to commit to further stimulus, waits for September data. At its first meeting following Brexit, the ECB decided to hold interest rates at record lows.
  • German economic sentiment plunged in July; the ZEW index declined from 19.2 to – 6.8, its lowest level since 2012. Germany is displaying economic stability and export concerns as it adjusts to Brexit ramifications.
  • China’s leading economic index rose 0.5% in June and the May figure was revised up significantly, implying steady growth over the past two months.
  • U.S. home sales were up 1.1% in June compared to May. May sales were revised slightly lower from 5.53 million to 5.51 million.
  • Housing starts rose 4.8% in June, an encouraging sign as 2H16 commences. Persistent undersupply in the face of high demand has kept homes out of reach for many potential buyers.
  • Jobless claims continued to impress, with the latest reading falling to a three month low of 253,000 for the week ended July 16. That beat the consensus estimate for 265,000 and was down from the prior week.
  • The International Monetary Fund (IMF) downgraded its 2016 global growth estimate 0.1% to 3.1%, the same as 2015. The IMF predicts a 2017 annual growth increase to 3.4%.

CPWM Weekly Market Monitor (2016.07.25)