Stocks checked their advance last week as investors weighed earnings reports and waited for more news. Worries at one of Portugal’s largest banks also contributed to mid-week losses. For the week, the S&P 500 lost 0.90%, the Dow fell 0.73%, and the Nasdaq dropped 1.57%.[1. http://goo.gl/JrfxGp]
Markets took a dive in the middle of the week on news that one of Portugal’s largest banks may be in trouble. Investor concerns about a possible domino effect in the EU’s financial system were soothed by statements from European Central Bank officials, who claimed that only one bank was affected by financial irregularities.[2. http://www.reuters.com/article/2014/07/10/us-markets-stocks-idUSKBN0FF18H20140710] However, investors still used the opportunity to take some profits off the table.
Expectations about second quarter performance also set the tone for markets last week. While investors were willing to shrug off negative news in the first quarter because of the poor weather, their optimism has raised expectations for Q2 earnings and economic performance. So far, we haven’t seen enough data to draw any conclusions, but total Q2 earnings for S&P 500 firms are expected to be up about 3.00%.[3. http://www.zacks.com/commentary/33310/its-all-about-q3-guidance ]
Economic news was scarce last week, but weekly jobless claims fell to one of the lowest levels since the last recession. While weekly numbers are always volatile, the four-week moving average also dropped to the second-lowest reading since August 2007.[4. http://www.cnbc.com/id/101825767] All told, it was a pretty good week for the labor market.
Earnings season kicks into high gear this week and reports will likely affect markets as investors discover whether their high hopes for second quarter performance bear out. Federal Reserve Chair Janet Yellen will also deliver her second semi-annual remarks on monetary policy before the House and Senate.[5. http://www.bloomberg.com/news/2014-07-10/yellen-testimony-china-gdp-gm-jpmorgan-week-ahead-july-12-19.html] Though we don’t expect any surprises, analysts will be digging into her comments for hints about when the Fed might raise interest rates.
Tuesday: Retail Sales, Empire State Mfg. Survey, Import and Export Prices, Business Inventories, Janet Yellen Speaks 10:00 AM ET
Wednesday: PPI-FD, Treasury International Capital, Industrial Production, Housing Market Index, Janet Yellen Speaks 10:00 AM ET, EIA Petroleum Status Report, Beige Book
Thursday: Housing Starts, Jobless Claims, Philadelphia Fed Survey
Friday: Consumer Sentiment
Wholesale inventories jump in May. Business inventories surged 0.50% from April as firms stocked up on autos, machinery, and lumber. Inventories are a key component of GDP calculations and gains in this area indicate that businesses could be restocking to cope with rising demand.[6. http://www.cnbc.com/id/101793184]
Percentage of uninsured Americans drops. A recent Gallup poll shows that only 13.40% of Americans lack health insurance, a significant drop from mid-2013, when 18.00% of Americans were uninsured. This could be good news for the healthcare sector, which might see increased demand from the newly insured.[7. http://www.cnbc.com/id/101827446]
Retail sector in a funk? Several retail chains have blamed weak earnings on sluggish demand, indicating that lower- and middle-income consumers may not be reaping the benefits of a growing economy.[8. http://www.cnbc.com/id/101830218 ]
U.S. refineries struggle to keep up with oil production boom. Rapid increases in oil extraction means America is in the upper strata of global oil producers. However, limited refinery capacity is keeping domestic gas prices high.[9. http://www.cnbc.com/id/101823507]