US Stock Markets Fall on Indecision
By Dale Gillham | Published 22 July 2019
The Dow Jones Industrial Average and S&P 500 Index have closed down this week despite 85 percent of companies beating analysts’ expectations. So why did this occur and what does it tell us?
During earnings season we would normally see increased volatility, which does not seem to have occurred. Instead, we are seeing the US stock markets fall on indecision with the main catalyst being caused by uncertainty.
Investors have had continued concerns over the trade talks between the US and China with many sitting on their hands not wanting to invest in the market. This is despite President Trump and China’s Xi Jinping agreeing on a tariff truce at the G20 summit last month.
Mr Trump, in his somewhat interesting and at times controversial style said at a cabinet meeting last week that he could impose further tariffs on Chinese imports. Really? This is something we already know, and of course, China could also do the same but where will that get them. Obviously, it won’t bring them closer to a resolution, which is not what either country wants.
On top of this, there has also been increasing pressure on the Federal Reserve to cut interest rates despite the overall positive outlook, flat inflation rates and the trade war threatening economic growth. While this may push the Fed to cut rates at its next meeting, in my opinion this has already begun to be factored into the market.
One thing I know for sure, is that if you listen to the media you will not make smart investment decisions, as you will be too emotional and subjected to external biases. Based on my analysis, I believe that the overall outlook for the US stock market is positive despite all the news
That said, I would like to see the market pull back slightly over the coming weeks to find support for the next rise. If the market does continue to rise or consolidate sideways in the coming weeks, it could be an indication of a larger decline later in the year.
Top and bottom performers in the US stock market
King of the hill, Microsoft reported quarter four earnings on Thursday with revenue up 12 percent and operating income up 20 percent, yet the stock price was down 1.64 percent.
Alibaba group surpassed beliefs reporting earnings of $1.28 a share which was 23 cents above estimates. It also reported revenue up 51 per cent from the prior year’s quarter, together with shareholders approving a stock split that could boost shares ahead of a Hong Kong IPO. Its shares closed up just over 2 percent this week, so I would keep this stock on my watch list in the coming months.
IBM also had a better than expected trading update, reporting earnings of $3.17 a share. The outlook for IBM is positive after the company recently completed a $34 billion red heat acquisition in the hopes of growing subscription-based software products online. IBM shares rose nearly 5 percent this week and is another stock to watch.
Netflix, on the other hand, was not so lucky down more than 15 percent after reporting it had lost more than 100,000 subscribers in the US alone. However, Netflix is optimistic paid memberships will bounce back later in the year.
Citibank kicked off earnings season for the banks reporting solid second quarter results with $4.8 billion in profit, which is a lift of 7 percent. Citi also announced a share buyback, which is always good for a stock.
Despite this, shares fell over 1 percent on concerns about future headwinds and net interest margins dipping. This year, Citi has been the top performing bank, up around 37 percent prior to earnings season.
Despite beating analysts’ expectations, Wells Fargo fell 3 per cent over fears of a disappointing outlook, which overshadowed earnings. Concerns about higher expenses and lower interest rates put pressure on the stock, which saw it trade below $45.20.
Bank of America also beat expectations, however, its shares were flat due to announcing a capital return of $37 billion and special dividends.
As for the Investment banks the news was still rather positive although Goldman Sachs was flat despite the banks bottom line exceeding expectations. JPMorgan also exceeded expectations reporting EPS of $2.82, which was above the $2.50 estimate and revenue also came in higher than expected at $29.57 billion. Yet it was down 1.5 percent.
Looking at the S&P indices, Materials was the best performer although it was only just in the green, while Consumer staples was not far behind being just in the red. Energy was also down over 2.5 percent, while Real Estate was down just over 2 percent.
The best performers in the top 100 companies on the S&P 500 include Philip Morris up over 8 percent, IBM up nearly 5 percent followed by Abbott laboratories up just over 4 percent and Boeing up just over 3 percent.
The worst performers were Netflix, which was down over 15 percent, CSX Corp down over 10 percent and Schlumberger, which was down just over 5 per cent.
So what do I expect in the markets this week. Let’s get in the charts and review the S&P 500 Index as well as some of the stocks of interest I mentioned earlier. Watch the video to learn more.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice.
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