State of the Stock Market Analysis for the Week Ending July 26th, 2015 (Push and Pull in Big-cap Tech 07-26-2015)
It was a strange week for the stock market in which we saw Apple (AAPL) fall early in the week on sub-par numbers, but then we saw Amazon (AMZN) rocket higher to close out the week. The “push and pull” in big-cap tech left investors not knowing quite what to think, and the major indices finished Friday in the red. For the week, things were not much better, as we saw weekly losses of 2.9% for the Dow, 2.3% for the Nasdaq and 2.2% for the S&P 500. The weekly declines were not that bad, however, and given the post-Greek solution bounce in the stock market, a little pullback seemed likely.
Greece and China had been in the spotlight throughout the first half of July, but the apparent renegotiation of Greece’s debt and the bounce in the Chinese stock market allayed some of those fears. China did get some bad economic news on Friday, which suggests that its growth rate is slowing, but that news was not enough to rattle global financial markets. The situation in Greece took a back seat this week to other market concerns, and investors breathed a big sigh of relief to have the chance of a Greek Meltdown off the table (at least for the time being). Despite these global shocks calming down, however, the broader U.S. stock market was still lower for the week.
Summer is supposed to be calm and quiet, so the general consensus was that “Summer Doldrums” might actually be showing up after a rough first couple of weeks of July. There is nothing like a collapsing Chinese stock market and the possibility of a country like Greece leaving the Euro to rattle the psyche of global investors. It was surprising to see Greece somehow muddle its way through a very challenging political crisis, but it did manage to do just that. It did not move toward a “Grexit” from the EU, and global investors generally applauded the new extension and “fix” that EU leaders and the Greek government put in place.
Back in the U.S., earnings and economic news remained mixed. While two-thirds of companies have topped earnings estimates for the second quarter, we are still seeing enough uneasiness to keep the stock market in check. The Nasdaq may have hit all-time highs this week, but the broader market indices have been unable to jump on the upward-moving train. Bulls were disappointed to see the Dow close out the week below 18,000 and to see the S&P 500 back below the important 2,100 level. The Nasdaq is still holding its own above 5,000, which is a bright spot in what was otherwise a tough week.
On the economic front, we saw new home sales for June fall to a rate of 482,000, from May’s 546,000. The June number fell short of the 550,000 that economists had expected, and it suggested that the consumer and housing sectors might be getting a bit tired. The housing number decline occurred despite the fact that interest rates remain low, and despite the fact that the Fed is still at least a couple months away from any sort of official rate hikes. The big worry is how the housing market and the broader economy will fare once the Fed actually DOES start to raise rates.
The earnings story and big bounce to all-time highs for Amazon (AMZN) had investors’ attention in a big way. The rise in Amazon pushed the company above Wal-Mart (WMT) in terms of market capitalization, and it also added around $7 billion to the net worth of Amazon founder Jeff Bezos. Amazon was one of those early “Internet” stocks that sold books online “and made no profits.” Well, 17 years and $260 billion in market cap later, Amazon is obviously doing something right. Hats off to Bezos and a job well done amid many naysayers on Wall Street over the years.
So the big key for next week is still earnings. This was a tough week for the stock market, so it will be looking to earnings for guidance. As we stated, it has been a good earnings season, but not a great one. That is what we will keep earnings center stage as we head toward the end of July. Investors will be looking toward the Federal Reserve as well, and any thoughts and comments from the Fed will also be center stage next week. That said, the Gorilla wishes each and all a relaxing July weekend, and we will be back in action on Monday. This is a great time of year to relax and unwind, so again, have a great weekend!
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