Stocks Stay Strong
It was a good week for global equities with modest tailwinds from micro and macro factors.
Q2 earnings reached their crescendo this week, with 174 companies reporting and 60% of the S&P 500’s market cap will have reported 2Q earnings.
On average, US companies are showing earnings growth of over 25%, reflecting strong economic conditions and the positive impact of tax reform.
Facebook Loses Friends
On Wednesday night, Facebook (FB) disappointed high analyst expectations despite posting 42% year-over-year revenue growth in the second quarter. The stock fell sharply in response, down 20%, after they missed revenue expectations and guided for a sharp growth deceleration and long term profit margin compression. Facebook’s tumble, which shaved off about $120 billion in market value, was the biggest one-day loss of any company in stock market history.
However, Amazon (AMZN), which reported Thursday night, calmed investor’s frayed nerves. Amazon exceeded high expectations with strong cloud computing and advertising and raised guidance for the third quarter. Comcast (CMCSA) profits also topped estimates as internet customers grew. Overall earnings have been positive, however, companies are starting to cite the impact of higher materials costs and potential costs of tariff actions.
Housing Market Slows
On the macro front, there was an ongoing focus on tariff and trade concerns, global central bank policy and the economy. The markets reacted positively on US President Trump and European Commission President Juncker’s agreement to make a deal and avoid an escalation of trade tensions.
US Second quarter GDP was released and met consensus expectations of +4.1%, boosted by personal consumption. On a slightly more concerning note, housing data continued to be mixed this week with June data showing a continued slowing in sales. Given that this can be a leading indicator of the economy, it will be watched to see if it is a real trend or just noise in the data.