Stocks rallied nicely last week, helping the tech-heavy Nasdaq 100 breakout of its year-long range and hit a fresh 15-year high. The market was able to breathe a collective sigh of relief when the two big threats (Greece and China) were temporarily resolved. Stocks rallied after it became clear that Greece would not leave the euro zone. Separately, the panic selling in China eased a bit after the Chinese government literally shut down a big chunk of their stock market, printed money to buy stocks and banned and arrested short sellers in an attempt to curb the selling. The real kicker, though, is that neither situation has been permanently resolved. That's why it is important to note that in bull markets (present market included), stocks rally regardless of the news. From where we sit, the reaction to the news matters a lot more than the news itself. For now, we are still in a very strong (but aging) bull market, which, by definition, means the path of least resistance remains higher (until any material technical damage emerges).
Monday-Wednesday's Action: Stocks Rally On Greek Deal
Stocks soared on Monday after lengthy negotiations between Greek officials and euro zone creditors produced a framework for the third bailout package for the tiny nation-state in the past few years. The latest agreement includes EUR 25 billion in bank recapitalization funds to help keep Greece in the eurozone (for now). The deal requires Greece to streamline value-added taxes, broaden its tax base to increase revenue, curb pension costs, and privatize public assets worth as much as 50 billion euros into a separate trust. Economic data was light, the Treasury Budget statement for June showed a surplus of $51.80 billion, beating the consensus for a $51 billion surplus.
Stocks rallied for a fourth straight day on Tuesday after a US-led coalition of five other nations inked a deal with Iran regarding their nuclear program. In the US, economic data did not impress. Retail sales fell -0.3%, missing estimates for a gain of +0.3%. The NFIB small business optimism index was 94.1, missing estimates for 97.5. JPMorgan Chase ($JPM) and Wells Fargo ($WFC) both rallied after reporting Q2 results. On Wednesday, stocks opened higher, but closed lower after Greek protests turned violent in Athens before the Greek parliament passed their latest bailout package. In earnings news, Bank of America ($BAC), PNC ($PNC) and US Bancorp ($USB) all rallied after releasing their Q2 results. Celgene ($CELG) raised guidance and said they are buying Receptos ($RCPT) for $232/share in cash, causing both biotech stocks to gap higher. The Biotech ETF ($IBB) broke out and continues to be a very strong group for this 6.5 year bull market. Elsewhere, Janet Yellen told the House Financial Services Committee that she expects a rate hike later this year if economic conditions hold up. Economic data was mixed. Producer prices rose +0.4% in June, beating estimates for a gain of +0.3%. The Empire Manufacturing Survey for July came in at 3.86, beating the forecast for 3.5. Industrial production rose 0.3% in June, beating estimates for a 0.2% gain. The Atlanta Fed Business Inflation expectation came in at 2%, slightly higher than the 1.9% estimate. The Fed's beige book showed economic activity is still not humming.
Thursday-Friday’s Action: Financials, Netflix, Ebay, Google Among Big Earnings Winners So Far
The Nasdaq 100 broke out of its year-long trading range and hit a new 15-year high on Thursday as investors digested a slew of economic and earnings data. Overseas, the ECB held rates steady, said Greece's place in the Euro is not doubted, and raised emergency funding. Netflix ($NFLX), Citigroup ($C) and Ebay ($EBAY) rallied after reporting their latest quarterly results. Jobless claims came in at 281k, beating estimates for 282k. The Philly Fed index slowed considerably to 5.7, missing estimates for 12.0. The housing market index was unchanged at 60, beating estimates for 59. Ms. Yellen testified to the Senate and reiterated her recent stance. Stocks were relatively quiet on Friday as the market paused to digest the latest rally. Economic data was mixed, the consumer price index rose 3%, which matched estimates. Housing starts jumped to 1.174M, beating estimates for 1.125M. Consumer sentiment came in at 93.3, missing estimates for 96.0.
Market Outlook: The Central Bank Put Is Alive And Well
Remember, in bull markets, surprises happen to the upside. This has been our primary thesis since the end of 2012. We would be remiss not to note that this very strong bull market is aging (celebrated its sixth anniversary in March 2015) and the last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007. To be clear, the central bank put is very strong and until material damage occurs, the stock market deserves the longer-term bullish benefit of the doubt. As always, keep your losses small and never argue with the tape. If you want exact entry and exit points in leading stocks, or access to more of Adam's commentary/thoughts on the market. consider joining SarhanCapital.com.
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