Weekly Expert Market Perspectives Park Avenue Securities PAS

Wall Street Pulls Back from Record Highs as Earnings Season Kicks Off

The major averages -- S&P 500 (-1.2%), Dow Jones Industrial Average (-0.7%), and Nasdaq Composite (-1.2%) -- began the week by eking out record closes, but the stock market ultimately looked uninspired during the first week of the second quarter earnings-reporting season.

The Russell 2000 lost 1.4%. Earnings reports came in mostly better than expected, including those from the big banks and Microsoft (MFST). Many of these stocks reacted positively to the good news, but the lack of positive price action in the market suggested that much of the goods news may have already been priced in. 

Shares of those companies that didn't at least meet expectations, however, like Netflix (NFLX) and CSX Corp. (CSX) were punished. Disappointing guidance from CSX rattled the Dow Jones Transportation Average (-0.3%), which fell 3.6% on Wednesday before earnings reports from Union Pacific (UNP) and KC Southern (KSU) welcomed renewed buying interest.

The S&P 500 communication services sector (-3.1%) was this week's laggard, as shares of Netflix fell 13% in the two sessions following its earnings report. The real estate (-2.3%) and energy (-2.7%) sectors were added weights on the market. Energy stocks were pressured by oil prices ($55.66/bbl, -$4.55) losing nearly 8% this week, although prices stabilized on Friday after Iran seized a British oil tanker. 

The consumer staples (+0.2%) and materials (+0.2%) sectors were the lone sectors that finished higher. The Philadelphia Semiconductor Index was a notable standout, rising 1.3% following positive earnings results and hopeful commentary from Taiwan Semi (TSM).

Another round of Fedspeak this week affirmed the market's expectations for at least a 25-basis points rate cut at the July 30-31 FOMC meeting. According to a report from The Wall Street Journal on Friday, the Fed is signaling that it will go ahead with the quarter-point cut.

That shouldn't be too surprising considering that economic data didn't convey any strong indications for a sharp rate cut. Retail sales for June increased 0.4% (Briefing.com consensus 0.2%), and the Philadelphia Fed Index for July climbed to 21.8 (Briefing.com consensus 5.0) from 0.3 in June.

U.S. Treasuries edged higher, pushing yields lower across the curve. The 2-yr yield declined two basis points to 1.82%, and the 10-yr yield declined three basis points to 2.05%. The U.S. Dollar Index advanced 0.3% to 97.15.

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Data and rates used were indicative of market conditions as of the date shown and compiled by Briefing.com. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Each company’s security affects the index in proportion to its market value. NASDAQ Composite Index is a market value-weighted index that measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ stock market. Dow Jones Industrial Average is a widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials, but also includes financial, leisure and other service-oriented firms. Russell 2000 Index measures the performance of the smallest 2,000 companies in the Russell 3000 Index of the 3,000 largest U.S. companies in terms of market capitalization. MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.

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2019-83071 (Exp 10/19)