The setup entering this past week was an interesting one as we were essentially dealt an ‘event vacuum’ in that the week was sandwiched between the prior week which heavily featured critical economic data and then this upcoming week which will be jam-packed with earnings and economic data. Other than the weekly initial claims and one interesting earnings report, last week, there were relatively few scheduled events which would be significant to markets. So, stocks were largely beholden to headlines last week and there were plenty of those. The uncertainty of U.S. Trade policy began to rear its head again as President Trump sent out various letters to trading partners outlining their updated and increased tariff levels should they not reach a better deal by August 1st. To investors’ credit, they largely were able to look through the noisy trade headlines of the past week and in Thursday’s session the S&P 500 and Nasdaq actually powered to new highs! The two events I mentioned, initial claims & DAL Q2 earnings, did seemingly help on the margins to reassure investors about both the health of the labor market and the appetite of the U.S. consumer to still spend. So, this added further support to the bull’s strong sentiment displayed last week. This was a great sign to continue to see some follow through from stocks after originally breaking out to new highs just over a week ago. Now, this impressive momentum behind stocks did finally slow to end the week as each of the three major indexes traded down in Friday’s session, ultimately leading them to all finish in the red on the week. I think this can largely be explained by two factors. Earnings season is about to accelerate big time this week, and some investors may have been looking to partially derisk ahead of time. Additionally, even though investors seem largely unphased by the noisy tariff talk as it crops back up, still with so few new deals done, as these letters outlining increased tariffs were sent out, this does indicate some degree of escalation in our current trade disputes. The market is still of the opinion that tariffs on key partners are likely to be negotiated down to tolerable levels but until that is finalized it is uncertainty for the market providing some overhang on stocks. All this said, stocks were due for a cooling off period and last week’s end-of-week action provided a bit of a start on that.
Even as stocks cooled to end this past week, the overall trend is still quite strong and encouraging for the medium to long term. Though we are anticipating some further mild consolidation in price action I always like to remind myself of this—pullbacks are a completely normal feature to any bull market, allowing for rotation and broadening out to occur and opportunity for more attractive entries. This is what we are going to be watching for in the coming weeks. We still anticipate the leaders to remain leaders, Tech, Financials, Industrials, displaying great relative strength. As I said before, the market’s trend is very strong, the S&P 500 is trading above all short and long term indicators that we track. In addition to this, we are seeing further signs of broadening strength occurring, exactly what you’d want to see in a strong bull market. The percentage of S&P 500 stocks trading above their 50-day moving average remains strong, near 70%. More importantly than that, we are seeing more and more stocks within the index now trading above their 200-day moving average, confirming that the stock is in a long-term uptrend. Last week as the market strength continued to broaden out, more than 65% of S&P stocks traded above the 200-day. This is quickly approaching a ‘sweet spot’ for a strong bull market with broad strength—when roughly 70% or more of stocks in the index are trading above this milestone. If we can retake this level, this will be an additional encouraging sign for the staying power of this rally. Because of these factors and having the market continue to make new higher highs and higher lows, our team’s outlook for stocks is still very strong.
✨ Unlock the power of precision trading with my WPO Newsletter—recent picks hit 52.4% & 117.4% peak gains in just weeks (past performance is not indicative of future results). Your first month is just $1—sign up now and seize your edge! 🏆
Key Events to Watch For
- Fresh Tariff Announcements
- Q2 Earnings Ramp Up
- Economic Data (CPI/PPI & Retail Sales)
Last week, investor’s concerns about U.S. Trade policy remained mostly muted despite the flurry of tariff-related headlines that we saw. Much attention had been paid on July 9th as this was the date when the ’90-day pause’ of the reciprocal tariffs was set to expire. As only several trade deals had materialized headed into this date, the market was mostly looking past it, anticipating that there would be a further delay before increased tariffs kicked in. The market nailed this call. Many letters were sent to various nations laying out the new tariff policy they will have to grapple with when trading with the U.S. However, the effective date was Aug 1st, again further delaying any significant ramp in tariffs. Since there have been so many delays in the new tariff policy being implemented, the market is now essentially looking past all of this as noise and until the policy is actually enforced, investors largely seem to be cognizant of what is being said, but not getting to worried at this point. With that said, any positive developments on the trade front will likely continue to be cheered by investors. So should additional deals with major trading partners develop, particularly if they are favorable deals, the removal of this uncertainty will be supportive for stocks.
Last week, we only got a small taste of Q2 earnings when DAL kicked things off and it was a solid start as they posted a nice double beat. This week, however, is going to feature a much heavier dose of earnings results and they start fast. On Tuesday morning before the opening bell, we will get Q2 numbers from many of the major U.S. Financials including JPM, WFC, C, & BLK. There are several more major Financial sector earnings reports as the week goes on as well. In addition to the Financials, we’ll also get earnings reports from both NFLX & GE this week as they are set to report on Thursday. Markets are anticipating another strong quarter of earnings, seeing strong results begin to be confirmed will be a tailwind for stocks. As many large-cap companies begin to report their results this week it will give us a good feeling for how strong this earnings season will be.
On top of the busy week that is expected with earnings reports, we also have a long list of fresh economic data on deck as well. There are several June inflation reports set to be released this week as CPI is scheduled for Tuesday & PPI for Wednesday. The current expectation on the street is that each of these reports will show a modest uptick in inflation, however still beginning with a two-handle. Once investors are able to digest this updated inflation data they will be quickly served a new retail sales report from June. After falling sharply in May, retail sales are expected to have increased incrementally in June yet still showing that the economy is chugging along as consumers are still showing a willingness to shell out cash. Earnings will still most likely be the main driver of stock prices in the week to come but the outcome of these reports could be setting up to be an additional catalyst pending their results.
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
Recent Comments