MARKET SNAPSHOT: Here's How Aging Bull Market Can Grind Out More All-time Highs
30 Juli 2016 - 3:33PM
Dow Jones News
By Sue Chang, MarketWatch
71% of S&P 500 companies beat on earnings in second
quarter
This bull market may be long in the tooth but stocks might still
nudge higher next week if earnings continue to surprise on the
upside and data reinforce the perception that the U.S. economic
recovery remains intact.
The S&P 500 rallied 3.6% in July for a five-month winning
streak that brought its year-to-date gains to 6.3%. The Dow Jones
Industrial Average added 2.8% in July--its sixth consecutive
monthly advance--to climb 5.8% this year, while the Nasdaq
Composite jumped 6.6% in July to bring its 2016 advance to
3.1%.
"The market has been expecting earnings to be C or C+, but so
far this quarter earnings have been a B-," said Jack Ablin, chief
investment officer at BMO Private Bank.
With 63% of S&P 500 companies having announced quarterly
results, 71% have beat on earnings and 57% have reported revenue
above estimates, FactSet data show. The percentage of companies
turning in better-than-expected earnings per share is above the
1-year average of 70% and 5-year average of 67%, said John Butters,
senior earnings analyst at FactSet.
Investors will be hard pressed to keep up with corporate news in
the coming week with over 100 S&P 500 companies scheduled to
release financial results. Among notable names on the calendar are
General Motors Co. (GM), Ford Motor Co. (F), Pfizer Inc. (PFE),
American International Group Inc. (AIG), Time Warner Inc. (TWX),
Humana Inc. (HUM), Costco Wholesale Corp. (COST), Kraft Heinz Co.
(KHC), and Priceline Group Inc. (PCLN).
Even the fact that the S&P 500 moved within a daily band of
0.92% over the past 11 days--the narrowest range in over 45 years
(https://lplresearch.com/2016/07/29/welcome-to-the-most-boring-market-in-21-years/?link=mktw)--is
a positive sign as "tight ranges like we are in now tend to resolve
higher," said Ryan Detrick, senior market strategist at LPL
Financial.
Frank Cappelleri, executive director of institutional sales at
Instinet, likewise believes the market is behaving just as it
should given the roller coaster ride in the aftermath of Brexit.
"The best case scenario after the breakout through 2,135 was to do
just this--constructively digest the move," he said, in a note.
Meanwhile, economic indicators are expected to have a bigger
impact on the stock market given the absence of high-profile
earnings, Ablin said. Key data to watch include ISM manufacturing
for July, consumer spending and inflation for June, and July
nonfarm payrolls.
The July jobs data, due on Friday, will be of particular
interest as investors look to get a better handle on the labor
market after a dismal May report was followed by robust June
employment
(http://www.marketwatch.com/story/jobs-roar-back-in-june-but-heres-why-you-shouldnt-get-used-to-it-2016-07-11)gains.
And despite disappointing gross domestic product growth in the
second quarter
(http://www.marketwatch.com/story/us-economy-grows-only-12-in-q2-below-expectations-2016-07-29),
a spate of robust indicators could boost expectations for an
interest-rate increase after the Federal Reserve stated this week
that near-term economic risks have receded
(http://www.marketwatch.com/story/fed-appears-more-open-to-september-rate-hike-2016-07-27).
Looking beyond next week, the market outlook gets a bit murkier
given that August is statistically a weak month.
Over the past 10 years, the S&P 500 has, on the average,
dropped 0.65% in August, according to LPL Research.
One of the biggest cheerleaders in the market, Tom Lee at
Fundstrat Global Advisors, earlier this month warned of a possible
selloff next month, noting that four out of the six recent Augusts
have witnessed big drops.
"We are scared about the month of August," he said.
Still, Lee stressed that he remains "overwhelmingly" positive
given improving credit conditions, solid earnings and the S&P
500's recent breakout and sees any dips as buying
opportunities.
(END) Dow Jones Newswires
July 30, 2016 09:18 ET (13:18 GMT)
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