Down goes the Dow

This bull market may be long in the tooth, but stocks could 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 -- 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 include ISM manufacturing for July, consumer spending and inflation for June, and July nonfarm payrolls.

The July jobs data, due 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 gains.

And despite disappointing gross domestic product growth in the second quarter, 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 .

Looking beyond next week, the market outlook gets 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 August selloff, noting that four out of the six recent Augusts have brought 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.

Sally V will wake up Monday morning at market open vomiting and with severe cramping after looking at her portfolio.....the market is up, why not me?.......

Market Watching

This bull market in stocks and bonds is long in the tooth, and sure to end in a root canal for the Muppets. Wall Street media outlets like FactSet continue to spew the fiction of surprising EPS data and a U.S. economic recovery. All of which seems hard to swallow in the face of 2nd quarter GDP data of 1.2%, 1st quarter revised down to 0.8% and continued fall in S&P 500 EPS and sales.

"The market has been expecting earnings to be C or C+, but so far this quarter is a D-, of course Wall Street has done its best to spin the meme of TINA" said Igy.

With 63% of S&P 500 companies having announced quarterly results, 38% have beat on GAAP EPS and 57% have reported revenue above estimates. It is important to remember that guidance had been lowered prior to the quarter to create a lower hurdle rate. The S&P 500 GAAP PE is now at 24.51 which is the highest level since 2009, Igy noted.

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 -- is a sign of exhaustion as as "tight ranges like we are in now tend to resolve lower," said Igy.

Igy believes the market is behaving just as it should given that "high frequency traders are finding it difficult to churn the market higher" he said in a note.

And despite disappointing gross domestic product growth in the second quarter, a spate of robust indicators could boost the chances for market churning by institutional investors. Looking beyond next week, the market outlook gets murkier given that August is statistically a weak month.

Still, Igy stressed that there are plenty of retail "saps giddy" over recent market moves in spite of declining fundamentals, and they believe the S&P 500's recent breakout or any dips will be buying opportunity.

Igy

This is not the Igy I know.

2/3/2016

Ghost of Igloi wrote:

I believe FB and GOOG will be added to my previous list of stocks who's stock prices compressed to meet their earnings.

I can be wrong.

DGTD Historian, February 2016, ancient history.....

Ghost of Igloi wrote:

Mr. Econ 101, "buy and hold" is merely a theory, and a rather poor one if measured against the last 16 years. I have no particular quarrel with "buy and hold" investors, but the Treasury bonds over the same period have delivered similar performance with less volatility and risk. Of course you will argue over a longer time horizon that is not the case. Perhaps, but that may be an evaluation in an extremely distorted market. There is another theory that is based on asset valuation and cash flow. That theory has over 90% predictability on future market performance. That is not a criticism, just a fact.

Igy

A. Buy and hold is not a theory.

B. A longer time frame reduces the effect of distortions in the market.

C. It's telling that you chose a time frame of 16 years instead of a more typical long term period.

Joe,

A. Assuming your definition is correct, "buy and hold" in practice does not deliver superior performance to any other strategy.

B. True, but so does the belief that low interest rates supports higher equity prices.

C. Back testing data at market tops distorts projections of future returns.

Igy

A. Irrelevant (but debatable)

B. Irrelevant

C. Agreed, but irrelevant.

I was responding to the points you tried to make in the earlier post I quoted. I have no interest in jumping off from there to other tangents.

Joe,

Fine, I was just pointing out where your analysis was incomplete.

Igy

Funny

Joe,

What's wrong cat got your tongue?

Igy

Nope. I've just said everything I need to for now. I don't have a need to continually listen to myself. Good night.

Damn, Figy, you just take a licking and keep on ticking. Too bad your cover has been blown. Your lies and misdirection have done you in. Give it up, troll.

Wall Street stocks were poised to start August on a positive note, with futures higher on Monday after last week's soft growth data reduced bets for a Federal Reserve interest-rate hike in the near term.

Dow Jones Industrial Average futures rose 49 points, or 0.3%, to 18,411, while S&P 500 futures added 4.8 points, or 0.2%, to 2,173. Nasdaq-100 futures gained 8 points, or 0.2%, to 4,734.75.

The S&P 500 just missed a record closing high Friday, while the Nasdaq Composite booked its best finish in more than a year, as Wall Street shook off concerns about sluggish second-quarter domestic growth to finish with tepid gains. The Dow industrials ended in negative territory.

Last week's positive sentiment was carrying over to a new month of trading Monday, as the prospects for a near-term Fed interest rate hike appeared to fade. The chances of a rise in U.S. interest rates fell to 12% from 18%, Fed Funds futures data from the CME Group showed.

The market appeared to brush aside comments from Bank of New York President William Dudley, who argued Sunday that an interest-rate hike this year shouldn't be ruled out. He made the comments in Bali, in remarks prepared for a joint central-bank seminar between the New York Fed and Bank Indonesia.

Investors will also keep their eyes out for another batch of earnings as the season winds down, though there are no major companies reporting Monday. Sixty-three percent of S&P 500 companies have announced quarterly results thus far, with 71% beating on earnings and 57% reporting revenue above estimates, FactSet data show.

Ghost of Igloi wrote:

Mr. Econ 101, "buy and hold" is merely a theory, and a rather poor one if measured against the last 16 years.

This is such a disingenuous statement that I feel compelled to come out of the woodwork and respond. It has been shown that buy and hold beats market timing just about 100% of the time. Of course if one searches long enough, one might find a time period (16 years...really?) for which this is not true. But a buy and hold investor will almost always do better than a market timer.

Ghost of Igloi wrote:

There is another theory that is based on asset valuation and cash flow. That theory has over 90% predictability on future market performance. That is not a criticism, just a fact.

Igy

What rubbish. I don't need a "theory" to predict future market performance 100% of the time when the only time frame given is the future. Here are two such predictions:

1. The market will go up in the future.

2. The market will go down in the future.

[quote]Sally V wrote:

Damn, Figy, you just take a licking and keep on ticking. Too bad your cover has been blown. Your lies and misdirection have done you in. Give it up, troll.

My God, you just never shut up and your every comment is just obnoxious.

HI, K5! Do you know what "the pot calling the kettle black" means?

Blind,

My bad proof reader, should read "market bottoms of 2002 and 2009." I will cut his pay for the error.

Igy