The year-long trading range we have seen on Wall Street continued, as the benchmark S&P 500 pulled back last week after flirting with resistance (the top of its year-long range). Earnings remain front and center as a slew of companies announced their Q2 results. So far, approximately 75% of companies have beat earnings estimates while just over 50% have beat revenue estimates. At first glance, the fact that two-thirds of the companies beat earnings estimates looks healthy, but it is important to note that estimates have been lowered substantially in recent months. So the "bar" is very low, and that is why investors are not aggressively buying stocks. For example, if company XYZ was expected to lose 10 cents per share in Q2 but "only" lost 5 cents - technically, they beat estimates but they still lost money - which is not healthy for this lackluster economic recovery. The bulls would argue that over the past 6.5 years, we haven't really seen a robust earnings season - yet the market continues to rally. In the short term, the market is moving sideways while the intermediate and long term trend remains up. 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 Drift Lower Top Of Range
Stocks edged higher on Monday, helping the S&P 500 rally into resistance (top of year-long trading range) near 2130 area. The Nasdaq 100 and Nasdaq composite jumped to fresh 15-year highs and continue to out-perform the other popular indices. Overnight, the big story was a massive drop in the price of Gold. Gold, (and most commodities for that matter) is in a very long bear market so the path of least resistance is down until the buyers can regain control. Gold hit an all-time high of $1,923.70/ounce in September 2011 and has plunged over 800 points, -43%, since that record high.
Stocks fell hard on Tuesday after a few closely followed blue chip stocks missed numbers and dragged the major averages lower. The S&P 500 simply pulled back from resistance of its year long range. IBM ($IBM) and United Technologies ($UTX), two Dow stocks, both fell hard on Tuesday. IBM 's year-over-year revenue showed the 13th consecutive quarterly decline which does not bode well for big blue. Separately, United Technologies plunged over -7% after revenue missed estimates and the company lowered earnings guidance for the rest of the year.
Stocks fell on Wednesday after Apple ($AAPL) and Microsoft ($MSFT) disappointed the Street with their latest quarterly reports. Chipotle Mexican Grill ($CMG) enjoyed an explosive gap up after reporting earnings. Commodities also remained front and center as gold fell for the 10th consecutive day and fell below $1,100 an ounce and crude oil fell to near $50/barrel. Economic data was light. The FHFA said US home prices matched estimates and rose +5.7% vs May 2014. Separately, existing home sales jumped +3.2% from the previous month in June hitting their highest level in over eight years. Existing homes sales rose to 5.49M, beating estimates for 5.4M.
Thursday-Friday’s Action: Earnings Continue Coming Out In Droves
Stocks fell on Thursday as stocks continued to drift lower sending the S&P 500 back to its 50 DMA line. Four big Dow stocks were hit hard after reporting their quarterly results. Credit card giant American Express ($AXP), 3M ($MMM), and Caterpillar ($CAT) all gapped down after reporting their numbers. After the bell, Amazon ($AMZN) soared after surprising the Street with a quarterly profit. The stock surged nearly 20% on the very strong quarter. Coffee giant Starbucks ($SBUX) and Visa ($V) also gapped up after reporting quarterly results. In other news, Anthem ($ANTM) agreed to buy Cigna ($CI) for about $188/share. Initial jobless claims plunged to 255k, easily beating estimates for 279k and hit the lowest level in over three decades. A separate report showed leading Indicators rose by +0.6% in June, beating estimates for +0.2% gain. The Chicago Fed National Activity Index rose to 0.08, beating estimates for -0.05. Kansas City Fed Manufacturing Index remains in negative territory and contracted to -7. Stocks fell hard on Friday after the latest round of earnings failed to impress investors and rumors spread that the FOMC's projections were leaked. Finally, new home sales plunged -6.8% to 482k, missing estimates for 550k and erased the past two months of gains.
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 (it celebrated its 6th 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.
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