Markets continued to show their strength last week with stocks extending their recent run. To close out the week we got three consecutive new all-time closing highs on both the S&P 500 and the Nasdaq. Last week’s trading was notable not only because each of these indexes traded higher into new uncharted territory, but also because the S&P 500 was finally able to breakout out of a recent trading range. For the three weeks prior, even though stocks continued to marginally edge out new highs, the S&P had largely remained in a range roughly between 6200 & 6300. However, in last week’s trading, stocks finally powered through the upper end of this range, closing above 6300 in every single trading session. This is powerful bullish momentum building! Now, the reason that stocks were finally able to really breakout to new levels and see this momentum reignite—virtually everything fell in the markets favor last week. Earnings continued to come in quite well. Last week’s most important report was GOOGL, which delivered a report that was about as strong as investors could have hoped for. Overall earnings have come in better than was expected thus far. In addition to the strong financial results, uncertainty in the trade picture is beginning to clear in the face of the Aug 1st deadline. Several trade deals were announced last week, with the most notable being a deal with Japan, a major trading partner. On top of this, there were rumors that more deals could be right around the corner, which we saw play out over the weekend, but more about that in a bit. Additionally, initial jobless claims continued to collapse, down to nearly 215K, a very comfortable level for markets. The result of all of this, the $VIX continued to slide as investors became increasingly more bullish throughout the week. As each of these items of concern continued to resolve in the market’s favor, it all came together as the perfect recipe for sending stock prices higher. This upcoming week is going to be full of significant market moving catalysts once again, so investors will be hoping to see each of these deliver and provide further support for stock prices.

            Following last week’s bullish thrust higher, there is a lot to cover about what to expect in the week ahead. Before diving into this, I want to briefly share some analysis of the current market-wide technicals and internals. One thing that really stands out to me is the growing breadth of stocks that are now participating in the upside price action. The number of stocks in short-term and long-term uptrends is continuing to grow. As of Friday’s close, specifically looking at S&P 500 stocks, 74% were in short-term uptrends and 67% were in long-term uptrends. This is exactly what one would want to see from a strong bull market. We expect this improving breadth to continue to translate into bullish price action over the long run. The S&P 500 Advance/ Decline index also took another leg higher, yet another strong sign of bullish support for the markets. All major trend lines for the indexes are still aligned perfectly, indicating strong long-term trend strength. As we wrap trading for the month of July, we are headed into a seasonably unfavorable and historically choppy period for markets—August & September. Of course, this does not mean these months have to unfold this way, only that there is a strong historical bias pointing towards that. With that said, the perception of this seasonality may come into play in the coming weeks. We have charged upward, setting new all-time highs at almost an unrelenting pace for almost a month now. Currently, stocks find themselves in clear ‘short-term’ overbought status once again. So, a quick reversion to the mean could certainly be in the cards. Just as we expected a few weeks back, a retracement back to the middle Keltner Channel is likely appropriate, however oftentimes stocks can remain in overbought territory longer than one may expect. This will be something to watch for in weeks to come.

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Key Events to Watch For

  • Trade Policy/ Aug 1st Deadline
  • Huge Week for Q2 Earnings
  • Fed Meeting & Economic Data

Over the weekend we continued to get further positive news on the trade policy front. A major deal was struck over the weekend between the U.S. and the E.U. settling the trade dispute. The final deal that was struck set tariff levels far below the worst levels that were threatened, easing a major point of worry for stock investors. This of course came on the heels of several deals that were announced in the prior week. However, this is certainly the biggest deal announced to date, given the massive trade relationship between the U.S. & the E.U. This week of course features the latest ‘deadline’ that was imposed by the Administration. The date is August 1st, and by this date, the Administration hopes to have all major trade deals finalized or close to it. We certainly have seen several extensions of past deadlines, but it would be wise to take note of this date given there are still a few important deals out there to be made, and the Administration has insisted that this is the final deadline. Investors will be hoping to see a few more major deals brokered before Friday.

Last week the Q2 earnings season really kicked into high gear with a substantial number of S&P 500 companies reporting earnings. So far through the reporting season, the numbers have come in quite strong with 80% of companies posting beats on both revenue and EPS expectations. There is still a good ways to go in this earnings season but so far, the reports have shown another strong quarter for business. This week the pace of earnings is going to accelerate even more as about one-third of S&P 500 companies are scheduled to report earnings this week. Just a few major names set to report this week are MSFT, META, AAPL, AMZN, & V among many others. To say that this is a big week for earnings and the market would be a huge understatement. Expect that the numbers reported this week will have a large impact on price action in the market.

As if there was not already enough to watch for in this coming week with only the trade policy announcements and earnings reports, we are in for a huge week of fresh economic data…oh and there’s a Fed meeting too! These events will really begin to unfold starting mid-week on Wednesday. That morning before the opening bell we will get the initial Q2 GDP report. Expectations are that we had a nice rate of growth in Q2 despite all the unease from tariff worries. Only a matter of hours later, the Fed will wrap their July FOMC meeting and announce their policy rate decision. This will of course be followed by Chair Powell’s press conference. Markets are all but assuring that the Fed is going to keep rates unchanged at this meeting. As the Administration has recently lobbed criticisms at the Fed Chair over a disagreement about the Fed Funds rate, following this meeting, should rates remain unchanged, expect to see those criticisms flare again. It should be noted though, that despite all the noise, President Trump has insisted several times that he is not going to attempt to fire the Fed Chair. Just those two events would generally be enough for a week’s worth of action, but there will still be more to go. On Thursday, we will get a fresh reading on PCE inflation with the June report due. Then finally, on Friday, the July Job’s report will be posted as well. The forecasts show that PCE will likely have risen marginally in June while the Job’s report is expected to show another moderate addition of jobs in July with the unemployment rate ticking up by 0.1%. One thing is for certain, there is enough to keep any market watcher busy in this upcoming week with all of these significant, potentially market-moving events on deck. However, each of these is a catalyst that could be the source of the next move in stocks—so traders should be in tune with these events in the week ahead.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,

Blane Markham

Author, Weekly Market Periscope

Hughes Optioneering Team