20 July, 2019 Market Commentary

Stocks Close Lower as Earnings Season Kicks Off

Market Commentary for the week ending July 20th, 2019


  • Stocks were generally lower around the world with international stocks holding up better than those in the U.S.
  • Retail sales surprise economists to the upside raising optimism about overall second quarter economic growth
  • Some of the first earnings reports for the second quarter are showing mixed results


Market Performance Summary

Source: www.YCharts.com

Notable Market Headlines

Stock were mostly lower around the world as the second quarter earnings season kicked off with some disappointments. Further compounding investors’ worries are continued geopolitical confrontations between the U.S., Iran, and others as well as some stronger then expected economic data that makes it slightly more difficult for the Federal Reserve to lower interest rates as many are hoping.

At the closing bell on Friday large U.S. stocks were lower by -1.2% for the week in what was relatively quiet trading overall. Small U.S. stocks fared slightly worse losing -1.5%. Energy stocks were the worst performing sector on the heels of the price of oil falling to a one-month low. Of note were Financial stocks down -1.3%, very much inline with the market, as many of the nation’s largest banks reported earnings that were generally mixed. Year-to-date large U.S. stocks continue to hold onto some of the biggest gains up +18.9% while small stocks are up +14.9%.

International stocks had a better week than those in the U.S. with developed markets down just -0.4%. Australian stocks were higher while both Japan’s and Europe’s were lower with a couple of the worst performers being Italy and Spain down -3.4% and -2.1% respectively. Emerging markets were flat overall helped by the largest of the emerging markets, China, up +0.8% while many others posted relatively modest losses. Year-to-date developed markets are higher by +11.5% and emerging country stocks are up +9.7%.

The non-traditional asset classes put up very mixed results. On the bright side was a rise in the price of gold by +0.7% resulting in a +10.9% gain so far in 2019. Disappointing though were drops in prices for both commodities and real estate stocks by -3.8% and -2.1% respectively. Commodities were impacted by a meaningful drop in the price of oil. Year-to-data all three are up double digits.

Bonds prices, moving contrary to stock prices as is generally expected, gained +0.4% pushing yields down for the week. Year-to-date bonds are up +4.6%.

Stock Highlights

JB Hunt Transport Services (JBHT), a freight logistics company serving North America, reported mixed results with revenue coming in at $2.26 billion, up +5.6% compared to the same period last year, while earnings per share declined by -10.2%. As the accompanying graph shows this company has delivered impressive growth in revenue during the past decade. The company says it is a sluggish environment but there are reasons to believe shipment volumes will pick up in the second half of the year. All of this resulted in the company’s stock being the best performer among the S&P 500 this week gaining +11.6%.

Source: www.YCharts.com

Philip Morris International (PM), the tobacco giant with the popular Marlboro brand, was among the first companies to report second quarter earnings this week. The quarter was better than analysts had expected with revenue of $7.70 billion and earnings per share of $1.46. The company has diversified into heated tobacco products which are driving sales growth while cigarette shipments are declining. Investors were pleased with the report sending the shares higher by +8.4% for the week giving the stock a 2019 gain of +32.9%.

Netflix (NFLX), the world’s largest content streaming company, reported subscriber growth that was about half of what Wall Street analysts had expected. Total growth came in at 2.7 million new subscribers with all of those coming from international markets while the number of U.S. subscribers declined by 126,000. The company said its content, or lack of new exciting content, along with price increases impacted results. Netflix stock dropped -15.6% for the week and, as the accompanying graph shows, and has failed to reach a new high in 2019 but has had an incredible 5 year run!

Source: www.YahooFinance.com

Symantec (SYMC), a leading software security company, was in conversations with chipmaker Broadcom (AVGO) to be acquired. These talks ended due to a disagreement in price sending Symantec’s shares lower this week by -12.9%. In spite of the drop, the stock is still higher in 2019 by +17.9%.

Economic Indicator - Reported

Retail Sales for the month of June came in strong up +0.4% which was meaningfully better than the forecast by economists of +0.1%. When stripping out gasoline, which fell in price for the month, overall retails sales were higher by an even stronger +0.7%. This strong month follows a similar gain in May and boost optimism about overall economic growth in the second quarter.

The housing market continues to struggle with housing starts slipping -0.9% in the most recent month to an annualized 1.25 million. The hot geographic markets, the South and the West, slowed during the month while the Northeast and Midwest showed gains. Of further concern was a drop by -6.1% in permits which could translate into slower housing starts in coming months.

The University of Michigan’s Consumer Sentiment Survey shows consumers remain confident about the market with the survey reading coming in at 98.4 compared to 98.2 the month before. In summary consumers do not feel as good about their current circumstances as they did a month ago but are more optimistic about the outlook for the economy. This survey reading remains nearly multi-year highs.

Industrial Production was flat in June capping two back-to-back quarters of declines officially putting the manufacturing sector in a recession. Although that is disappointing, production is +1.3% higher than it was 12 months ago.

Economic Indicators – Upcoming

The following economic data is expected in the coming week:

  • Gross Domestic Product (GDP) for the second quarter with economists forecasting growth of +2.1%
  • New Home Sales
  • Existing Home Sales
  • Durable Goods Orders

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