7/13/18 – Stocks Rally as Earnings Season Begins

Stocks posted their best week in over month, gaining ground for a second consecutive week. The Dow gained 2.3% while the S&P 300 increased 1.5%. Optimism around second quarter earnings and reduced concerns about a trade war helped fuel stocks.

Second quarter earnings officially kicked off today with JP Morgan, Wells Fargo and Citigroup reporting results. All three beat on earnings, but only JP Morgan also beat on the top line. I thought the results were generally positive, but the stocks all sold off slightly today. The financial sector has struggled this year, but has rebounded some since the Fed approved incremental buybacks and dividends for the main banks. Corporate loan growth was stronger than expected suggesting companies are looking to issue debt while rates are still relatively low to fund business investment or capital returns to shareholders. It’s somewhat concerning that financials are lagging the overall market given a raising interest rate environment, economic growth that looks to approach or exceed 3% annually and strong financial results. Over the next three weeks, almost 90% of the S&P 500 will report earnings and we should get a better read on how corporate America is evaluating the economy. Read More

The demise the of the brick and mortar retail business is often discussed as customers increasingly prefer online shopping. To fight this trend, Nordstrom is trying something completely different with the opening of several stores with no inventory. It’s an interesting idea intended to give shoppers a place to relax (beer and wine are served) as well as try on and return online orders. Customers can ship orders directly to the stores, which at 3,000 square feet are significantly smaller than a traditional Nordstrom location. It will be interesting to see how consumers respond to this offering and whether other retailers follow suit. Read More

Oil declined this week, decreasing 4.4% to close at $70.69/barrel. The yield on the 10-yr Treasury moved higher, closing at 2.83% from 2.82% last week. The average rate on a 30-yr fixed rate mortgage ticked higher to 4.53%, from 4.52% last week.

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