Last week’s market was generally positive as Apple led the information technology stocks out of a brief collapse. On Friday’s close, the S&P and Dow were higher for the fifth consecutive week while the NASDAQ broke a two-week losing streak with a positive gain of 9 to 7812 which was helped by AAPL and TSLA. The Russell 2000 index of small stocks dropped 9 points last week.
The yield on the 10-year Treasury Note broke through 3.00% when the market closed on Wednesday. This was the first time it had closed above the 3.00% since late May but eased off of that level to trade back down to 2.93% to start the new week on Monday because of the three weaker reports on Friday – namely the July jobs report which came in below consensus at 157,000; the June trade deficit which widened out to $46.3 billion which was the highest since November 2016 and the July ISM Non-Manufacturing Survey which came in at 55.7, the lowest since August 2017.
With the beginning of any new week, the market usually starts lower. Yesterday the Dow was down by 50 points to start but then ended with a closing gain of 39, showing that the recent tendency is for buyers to come in on early weakness. The overall market was led by the technology sector, with AAPL at a further new record high, FB making a very strong recovery from its recent earnings-related selloff and NFLX also continued to recover and AMZN is starting to approach its best ever level as well.
Last Tuesday, Apple released their earnings report with $53.3 billion revenue, which increased 17% from the year-ago quarter. After two days, the stock’s rallied more than 8% to hit a market cap of $1 trillion. It became the first publicly traded U.S. company to reach that never-before seen level. By the close of last Friday, Apple’s stock was at $207.05 per share, so with 4,829,926,000 shares outstanding, this is how the $1 trillion level was reached. Last Wednesday, TSLA reported its second-quarter earnings and reported a loss of over $700 million. However, its stock surged over 8% in aftermarket trading and continued even further on Thursday. Why did TSLA’s stocks increase after its earnings report release? One of the reasons could be that TSLA’s C.E.O., during the conference call with analysts, said he believed they would be profitable with positive cash flow for the third and fourth quarters.
After their two-day meeting which ended last Wednesday, Federal open market committee officials decided to keep the interest rates unchanged, at a range of 1.75 to 2 percent. They revised the characterization of economic growth from “solid” to “strong”, a signal it is likely to raise rates in both September and December as well. With no updated economic projections, the main focus was always on its policy statement. However, the only change was the economic activity growth in June which was no surprise, which reflected the strength of the second – quarter G.D.P figures, and the last business surveys, which suggested that growth remained at 4% annualized in July. They also said that that headline and core inflation remains near 2%, but inflation expectations have been little changed. From the Fed’s statements, it showed that trade fears were not showing up in the data, yet and that the risk to the economic outlook was roughly balanced. At the present time, the Fed has put the emphasis on the strength of growth and the slow acceleration in underlying inflation that will allow the F.O.M.C. to raise rates once a quarter over the next 12 months. By the middle of next year, the fiscal stimulus can be expected to fade and impact of monetary tightening could slow down economic growth.
July’s jobs report showed that U.S. non-farm payrolls increased by a more modest 157,000 and the unemployment rate fell to 3.9%. The labor market still maintains in good health and any negative market reaction should be limited. The largest gains were from professional and business services at 51,000, leisure and hospitality at 40,000 and 37,000 manufacturing positions. Overall, retail increased by 7,000 positions, but sporting goods and hobbies retail employment decreased by 32,000. Although the unemployment rate remained slightly above the low of 3.8%, the broader U6 unemployment rate decreased to a 17-year low of 7.5% from 7.8%. Average hourly earnings increased by 0.3%in July, but the annual growth rate remained the same at 2.7%. In addition, the U.S had a trade deficit increase from $43.2 billion to $46.3 billion in June, because exports fell by 0.7% and imports increased by 0.6 %.
It was not surprising that the Trump administration decided to increase the rate of tariffs from 10% to 25% on an additional $200 billion of Chinese goods on August 2nd. The U.S. trade representative stated that the increase in the tariff rate would encourage China to change its policies that would create fairer markets, but the information technology industry council led by Google, Facebook believes this move is “irresponsible, and counterproductive” and would eventually do harm to Americans.
In conclusion, during the past week, the market was slightly stronger with accelerating earnings, increases in the labor market, and continued Fed support of consumer spending. In addition, AAPL became the first publicly traded U.S. company to reach $1 trillion in market cap value. Whereas the trade war is heating up between the two largest economic powers, which could eventually affect many industries. This week, investors should watch for the inflation data for July P.P.I. and C.P.I. to see if the inflation rate has reached the Fed’s goal of slightly above 2%.
Donald Selkin
These are excerpts from Don Selkin’s Market Notes, abbreviated and updated with permission from the author. Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analyses concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, Recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: Bloomberg Financial, Reuters, and the Associated Press.