/perspectives/weekly-viewpoint/focus-returning-to-fundamentals

Focus Returning to Fundamentals

The major market indices finished the week solidly higher reflecting easing tensions surrounding Greece and stabilization in the Chinese equity markets. A solid kick-off to second quarter earnings season and favorable data points in the housing sector added to the positive tone.

July 20, 2015    |    By Mike Schwager

Performance for Week Ending 7/17/15:

The Dow Jones Industrial Average (Dow) rose 1.84%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 2.21%, the Standard & Poor’s 500 Index (S&P 500) gained 2.41% and the Nasdaq Composite Index (NASDAQ) tacked on 4.25%. Sector breadth was positive with 8 of the S&P sector groups finishing.  The Technology sector (+5.26%) led the way higher followed by Financials (+3.01%) and Healthcare (+2.23%).

Index* Closing Price 7/17/15 Percentage Change for Week Ending 7/17/15 Year-to-Date Percentage Change Through 7/17/15

Dow

18086.45

+1.84%

+1.48%

Wilshire 5000

22029.77

+2.21%

+3.48%

S&P 500

2126.64

+2.41%

+3.29%

NASDAQ

5210.14

+4.25%

+10.01%

*See below for Index Definitions
 

MARKET OBSERVATIONS: 7/13/15-7/17/15

The major market indices finished the week solidly higher reflecting easing tensions surrounding Greece and stabilization in the Chinese equity markets. A solid kick-off to second quarter earnings season and favorable data points in the housing sector added to the positive tone.

Yellen Testimony: As expected Fed Chair Yellen’s testimony to lawmakers in Washington last week contained little new news. Yellen echoed several themes from her other recent public appearances and reiterated that the FOMC expects to raise the funds rate "at some point this year."  She also said that the “pace” of future rate hikes over the entire cycle is more important than the initial lift-off and changes in policy will be data-dependent and subject to revision should the economy surprise on the upside or downside. Bottom-line, it still appears that one rate hike remains in the cards before year-end.

June Beige Book: The Federal Reserve’s Beige Book, which contains an assessment of economic conditions from the 12 Federal Reserve districts, reported a broad-based pick-up in economic activity. Activity expanded across all 12 districts, with an upgraded pace of growth among many regions. Consumer spending grew across the country, real estate activity picked up, labor markets continued to improve, and there were nascent signs of upward wage pressures. On balance, the June Beige Book suggests a more optimistic tone for economic activity.

Economic Data: Housing data continues to confirm that the housing sector is gaining ground and will likely become a larger contributor to economic growth in the quarters ahead.  Last week, the Commerce Department reported that housing starts during the month of June jumped by 9.8% to 1174K annualized units.  Meanwhile, building permits—which tend to be a leading indicator of future construction—rose 7.4% to an annualized rate of 1343K, the strongest pace in eight years. Elsewhere, home builder sentiment rose to the highest level since November 2005.  According to the National Association of Homebuilders (NAHB), the uptick in sentiment reflected improving labor market conditions, historically low mortgage rates, and the soaring costs to rent.

Q2 EPS Season: Even though it remains early in the reporting season, second quarter results are off to an encouraging start. Through Friday, 61 members of the S&P 500 have reported results with 70.5% surprising to the upside.  Overall reported earnings for the S&P are currently up 0.6%, but still solidly better than the 5.3% decline expected when all is said and done. Expectations heading into the quarter were muted due to global growth concerns and the lingering impact of the strong dollar and weaker energy prices. With the bar being set so low, this in turn should leave plenty of room for continued upside surprises – stay tuned.

The Week Ahead: The earnings calendar will move to the front burner with almost 130 members of the S&P 500 scheduled to report earnings during the week.  The economic calendar will be relatively quiet with housing related reports being the focal point.  Data due out include June existing home sales on Wednesday and June new home sales on Friday. The Fed speaking calendar will be quiet, reflecting the traditional blackout period ahead of the upcoming FOMC meeting (July 28 & 29).


Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm’s headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor’s 500® Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

Past performance is no guarantee of future results. Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.

The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.

 

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