Morning Commentary
Last Friday was a lazy summer session that saw major indices traded in narrow ranges but slip ever so slightly into the red by the closing bell. The market was essentially unchanged for the week in what was really idyllic compared to explosive headlines that covered everything from Russia, trade & tariffs to the Federal Reserve.
Industrials were impressive on Friday with big beats from Cintas, Honeywell and Stanley Works. For the week, United Continental led the way as airlines and rails picked up the pace, lifting the Dow Jones Transportation index into the plus column for 2018.
I give credence to the Dow Theory that transportation names must lead the way in order to have a broad sustained rally. On that note, from a technical perspective there are two big positives for transportation names.
The index held at its critical 200-day moving average as the index continues to make higher lows.
On Friday the index close above its 50-day moving average which often a major buy signal.
Financials
For the week, regional banks help lift the S&P Financials to top performer and JP Morgan was the biggest winner in the Dow Jones Industrial Average. Yet I feel like financials in general, but banks in particular, aren’t living up to the hype even with solid earnings results thus far.
S&P 500 Index Performance Week Ended July 20, 2018 |
+0.22% |
Consumer Discretionary (XLY) |
+0.28% |
Consumer Staples (XLP) |
+0.27% |
Energy (XLE) |
-0.94% |
Financials (XLF) |
+1.51% |
Health Care (XLV) |
-0.36% |
Industrials (XLI) |
+1.57% |
Materials (XLB) |
-0.14% |
Real Estate (XLRE) |
-0.97% |
Technology (XLK) |
-0.12% |
Utilities (XLU) |
+0.25% |
Earnings Season
Overall earnings have been remarkable coming in even better than expected. Results improved on results coming into the week blended revenue growth was 8.1% and earnings 21.1% now revenue is up to 8.3% and earnings 22.0%.
S&P 500 Financial Reports |
Blended Average |
Beat Consensus |
Revenue |
8.3% |
73.6% |
Earnings Per Share |
22.0% |
83.9% |
Source: Thompson |
Additional Highlights
According to Fact Set, the second quarter is on pace to match the first quarter profit margin of 11.6%, which was the highest since 3Q08.
What’s even more remarkable is four sectors posted their highest profit margins since Fact Set began measuring data (3Q08):
This makes these sectors even more attractive for value investors.
But, but, but…
Earnings misses are punished big time. The average decline of -3.8% in the two days after posting results is well above the -2.5% historic average.
This Week
174 S&P 500 components and 11 Dow Jones components report this week.
All the major indices are higher but what has to happen to break them all out at the same time and send them back into all-time high territory?
Today’s Session
Reaction has been mixed to earnings this morning with Hasbro emerging as the big winner. Hasbro’s revenues were lower from a year ago, but that was built into the share price, as management posted results that beat the street’s top and bottom lines. The most intriguing part of the business was the growth in entertainment and licensing where revenues climbed 26% and operating margins soared to 28.8% from 22.0%. The company also acquired Power Rangers, building its inventory of content sources.
Several names are lower on earnings misses, including Halliburton.
For the most part, the market remains in a cautious mode, which is better than panic. But, the markets are still wondering what will spring this coiled spring. Once the dust settles, I think guidance is the key from the biggest names. Investors will know where the real value is based on execution and visibility.
Tweet |
3/28/2024 1:39 PM | Fruitful Quarter |
3/28/2024 9:50 AM | LISTEN TO THE MARKET |
3/27/2024 1:40 PM | Mostly Higher |
3/27/2024 9:32 AM | U-TURN? |
3/26/2024 1:08 PM | Everything Is Up |
3/26/2024 9:42 AM | TAPPED OUT (I HOPE YOU AT LEAST GOT A T-SHIRT) |
3/25/2024 1:33 PM | Not A Mutiny |
3/25/2024 9:35 AM | STAYING THE COURSE…BEYOND TECH |
3/22/2024 12:56 PM | Toll on Americans |
3/22/2024 9:38 AM | A TAD TIRED |
3/21/2024 1:55 PM | Building on Gains |
3/21/2024 9:30 AM | A COMFORTING FED |
3/20/2024 1:33 PM | Pivotal Moment |
3/20/2024 10:00 AM | HERE COMES THE FED |
3/19/2024 1:33 PM | Picking Up Steam |
3/19/2024 9:35 AM | RUMBLINGS IN THE BOND MARKET |
3/18/2024 1:48 PM | Mag 7 is Back |
3/18/2024 9:39 AM | THE PARTY IN SAN JOSE WILL BE LIT |
3/15/2024 1:38 PM | Realtors Settle |
3/15/2024 9:33 AM | AN UNEASY PAUSE |
3/14/2024 1:43 PM | Sticky Inflation |
3/14/2024 9:48 AM | GOING TO A GO-GO |
3/13/2024 2:16 PM | Taking a Breather |
3/13/2024 9:51 AM | ALL SO EPIC |
3/12/2024 1:42 PM | Marching Higher |
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