ALL BLOG CONTENT IS FOR INFORMATIONAL PURPOSES ONLY. ANY REFERENCE TO OR MENTION OF INDIVIDUAL STOCKS, INDEXES, OR OTHER SECURITIES ARE NOT RECOMMENDATIONS AND ARE SPECIFICALLY NOT REFERENCED AS PAST RECOMMENDATIONS OF PATTON WEALTH ADVISORS. ALL GRAPHS, CHARTS, AND TABLES ARE PROVIDED FOR ILLUSTRATION PURPOSES ONLY. EXPRESSIONS OF OPINION ARE ALSO NOT RECOMMENDATIONS AND ARE SUBJECT TO CHANGE WITHOUT NOTICE IN REACTION TO SHIFTING MARKET, ECONOMIC, OR POLITICAL CONDITIONS. IT IS COMMON FOR US TO USE A FUND AS A PROXY FOR AN INDEX OR ASSET CLASS. FOR MORE DETAILS SEE OUR FULL DISCLOSURE HERE.
Week Ending 7/29/2017
- U.S. stocks overall were little changed for the week but with meaningful movement among various sectors
- Oil rallied driving the commodity index sharply higher
- Upcoming news this week will include earnings from Apple and the monthly jobs report
Notable Market Headlines
It was a good week for investors with well-diversified portfolios but somewhat disappointing for those holding only traditional stocks, bonds, and cash.
U.S. large stocks were flat for the week although there were distinct winners and losers. Energy sector stocks rallied +1.8% on a jump in the price of oil. On the other end of the spectrum were healthcare stocks falling -1.3% following the Senate’s inability to make progress with the revamp of the healthcare system. Technology stocks, the leaders so far in 2017, were losers this week down -0.9%.
U.S. small stocks edged lower by -0.4% but remain higher by +5.3% year-to-date. Large U.S. stocks have nearly doubled the performance of small U.S. stocks year-to-date with a gain of +10.5%.
International stocks continued their 2017 rally with developed country stocks gaining +0.4% for the week. Contributing to this performance was Italy’s market up +1.6% and Spain’s gaining +2.2%. Spain’s market has been a leader for this group in 2017 with a gain of +28.8% as compared to the average developed country market higher by +15.7%.
International emerging markets were also higher for the week, up +0.3%, and remain the strongest group of stocks in 2017 with a gain of +25.0%. It’s been an impressive rally after having lagged behind U.S. markets for multiple years. One of the standout leaders in the emerging market group has been India’s market higher by +1.5% this week and up an impressive +30.4%.
The less traditional asset classes posted the biggest gains this week including a jump in the commodity index by +4.2% fueled by a strong rally in oil. In spite of this strong gain though the index remains lower by -7.3% year-to-date. Real estate and gold also moved higher this week, up +0.6% and +1.2% respectively. These asset classes are considered to be particularly good investments during periods of higher inflation but there continues to no signs of any meaningful pricing pressure in the economy.
Bonds were little changes for the week, down -0.1%. The Federal Reserve left interest rates unchanged for the time being, as expected, but did indicate intentions to start reducing its large balance sheet of bonds as early as September. Furthermore, it indicated that today’s low inflation rate will not change its plans to continue raising rates later in the year.
Investor Trivia Question
Facebook is clearly the dominant social media platform today. As reported below, the company reported results that impressed across the board. The company’s roots trace back to 2003 when founder Mark Zuckerberg wrote a program called “Facemash” while attending Harvard. This was a hit from nearly day 1 and continues.
A key metric of success in the social media space is the number of monthly users. How many monthly users did Facebook report for the second quarter?
See below for answer.
Winners and Losers by Sector
Boeing Co (BA), one of the world’s largest aircraft manufacturers, reported earnings ahead of Wall Street estimates and driving its stock higher by +13.7% for the week. Revenue was shy of expectations but earnings topped forecasts as the company continues to implement cost-cutting efforts that are being viewed positively by investors. The accompanying graph shows the company’s annual revenue and the pattern of growth followed by periods that level off.On top of the strong quarter, the company raised its outlook for the remainder of the year.
Facebook (FB), the dominant social media giant, saw its stock hit a new all-time record higher on the back of a +4.9% gain for the week. This week’s strength was the reaction by investors to a strong earnings report showing the company delivering on every major expectation. Notable is its growth in mobile video ads and helping overall advertising revenue grow at nearly double the pace of rival Google. Year-to-date this stock is higher by +49.9%.
Amazon (AMZN) disappointed investors with second quarterly financial results showing earnings per share of just $0.40 as compared to an estimate of $1.42. This big miss spooked investors and drove its stock down -2.5% in reaction to the report but the stock was only off -0.6% for the week. This big earnings miss came in spite of a 25% jump in revenue. The company continues to invest in areas of growth, consistent with its long history but none-the-less disappointing to investors for the moment. Year-to-date the stock is higher by +36.0%.
Alphabet (GOOGL), the parent of internet search giant Google, reported earnings that disappointed investors resulting in a drop in its stock prices by -3.6% for the week. Revenue for the quarter came in at $26.0 billion, ahead of estimates, but earnings were sharply lower as compared to last year’s results due to a $2.74 billion anti-trust fine in Europe. That all said, the number that got the most attention was the -23% drop in the cost-per-click, a highly followed metric for Google. This drop was steeper than the -15% drop estimated by Wall Street. Alphabet’s stock remains higher by +20.9% year-to-date but is lagging behind the performance of some of its large tech peers as illustrated in the accompanying graph.
Two leading data storage companies saw their stocks drop double-digits this week following disappointing reports from both companies. Seagate Technology (STX) stock fell -17.6% following its earnings report showing revenue below last year’s level and news its CEO will be stepping down. Much larger rival Western Digital (WDC) reported big growth on the top and bottom line. It’s hard to find any disappointments in this quarterly report but WDC’s stock dropped -10.4% although it remains higher year-to-date by +25.0%.
Economic Indicator - Reported
Gross Domestic Product (GDP) was reported higher by +2.6% for the second quarter as expected. This is a sharp improvement from the slower first quarter growth rate that was revised down to +1.2%. Helping drive second quarter growth was business investment higher by +5.2% and durable goods (items lasting longer than 3 years) purchases increasing +6.3%.
Consumer Confidence for July came in at a reading of 121.1, meaningfully better than even the highest economists’ estimates and holding at levels not seen since 2000. Low gas prices, record highs for the stock market, and a strong jobs market are contributing to confidence.
Durable Goods Orders for June jumped +6.5% as compared to the average economists’ estimate of only a +3.5% rise. This headline number though is skewed by a 131% increase in aircraft orders, an extremely volatile component of this report. When excluding transportation, durable goods only increased by +0.2% which was half the estimate.
Economic Indicators – Upcoming
The July employment report is expected to show a gain of 180,000 new jobs for the month and the unemployment report falling to 4.3% from 4.4%. The private sector is seen contributing nearly all of the new jobs including small gains in manufacturing which is contrary to the multi-decade trend of declining payrolls in the manufacturing sector. As the accompanying graph illustrates, manufacturing now accounts for just under 9% of the total jobs as compared to more than 30% decades ago.
Personal income and spending numbers for June will be reported with income expected higher by +0.4% and spending up only +0.1%.
Additional economic reports this week will include motor vehicle sales, factory orders, and the PMI manufacturing index.
Investor Trivia ANSWER
Facebook reported more than 2 billion monthly users in the second quarter! This is up from just under 1 billion in 2012 and meaningfully higher than all other popular social media platforms as illustrated in the accompanying graph.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Any specific securities or investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own situation before making any investment decision including whether to retain an investment adviser.
All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. This content was created as of the specific date indicated and reflects the author’s views as of that date. Supporting documentation for any claims or statistical information is available upon request.
Past performance is no guarantee of future results. Any comments about the performance of securities, markets, or indexes and any opinions presented are not to be viewed as indicators of future performance.
Investing involves risk including loss of principal.
Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly. For more information on specific indexes please see full disclosure here.
Any charts, tables, forecasts, etc. contained herein are for illustrative purposes only, may be based upon proprietary research, and are developed through analysis of historical public data.
All corporate names shown above are for illustrative purposes only and are NOT recommendations.
International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.
Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Lower-rated securities are subject to greater credit risk, default risk, and liquidity risk.