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  • July 29, 2019

Week in Review

Week Ending: Friday, July 26, 2019

Recap & Commentary

Markets ended the week little changed as investors bided their time analyzing second quarter earnings reports ahead of next week’s Federal Reserve meeting. Outside of the release of second quarter GDP, there was little material information to move the markets. An announcement that the US and China will engage in face-to-face meetings in the upcoming week generated little response given recent failures to negotiate a successful trade deal.

In the U.K., Boris Johnson was elected as the country’s new Prime Minister. Johnson, who previously served as London’s mayor, was a major proponent of the original Brexit vote. Speaking during his first day as PM, Johnson stated that he is prepared to negotiate a “new” and “better” Brexit deal with the EU and that the UK will leave the EU by October 31, “no ifs, no buts”. Still to be seen is whether or not the EU will be willing to renegotiate the deal that it had previously negotiated with former PM Theresa May.

Through Friday, 44% of S&P 500 companies had reported second quarter earnings. Thus far, 77% have beaten their consensus earnings estimate, while 61% have beaten their consensus revenue estimate. Both figures are above the 5-year average. Currently, full quarter earnings growth is forecasted to be -2.6% which if met would be the first time the index has experienced two consecutive quarters of negative earnings growth since the start of 2016.

Economic Bullet Points

GDP -- Real GDP rose at a 2.1% annualized pace in the second quarter, which was stronger than economist forecasts calling for sub-2.0% growth, and higher than the Atlanta Fed’s 1.3% GDPNow estimate. Driving the stronger-than-expected growth figure was a surprising 4.3% increase in real personal consumption expenditures. Specifically, real spending on durable goods soared nearly 13%, the strongest sequential growth rate in five years, while expenditures on non-durable goods climbed 6.0%. Also, real consumer spending on services grew at a solid growth rate of 2.5%. Year-over-year, however, real GDP growth slowed to 2.3%, down from the 2.7% clip registered last quarter.

Housing -- New home sales rose 7% in June but sales for the prior three months were revised lower, leaving the level of new home sales well below consensus expectations. Existing homes sales, conversely, declined -1.7% in June. Despite the drop, sales of existing homes remain fairly solid, and lower mortgage rates will likely keep resales on an upward trend for the remainder of the year.

Durable Goods Orders -- For the first time in three months, durable goods orders rose in June, helped along by an unexpected bump from aircraft orders. Overall, this report was viewed as a welcome reprieve, but the year-to-date downtrend in capital expenditures spending remains firmly negative.

International Trade in Goods -- A -$136.3B decline in US exports led to a deeper-than-expected -$74.2 billion trade gap in June. Total exports on the year are down -3.7 percent, while imports are up only a marginal 0.2 percent, which in some respects supports the Fed’s case for a July 31 interest rate cut.

Of Note

Online vehicle auction company Copart, the last remaining S&P 500 company with an all-male board of directors, announced the appointment of its first female board director.

Market Indices Week of 6/29

S&P 5000.9%
Small Caps0.9%
Intl. Developed0.0%
Intl. Emerging-0.3%
Commodities-0.5%
U.S. Bond Market0.0%
10-Year Treas. Yield2.07%
US Dollar0.7%
WTI Oil ($/bl)$56
Gold ($/oz)$1,415

The Week Ahead

  • Personal Income & Outlays
  • Case-Shiller HPI
  • Pending Home Sales
  • Consumer Confidence
  • ISM Manufacturing
  • July Employment Report
  • International Trade

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