July US Market Recap: Equities move up and to the right behind strong Q2 earnings

9 August 2017

By Mike Coffey

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                                                                             Overall Market Returns for the Month of July, 2017.

 

The rally continued in July as the markets moved higher across the board led by strong earnings results and continued global growth.

According to FactSet, 84 percent of S&P 500 companies have reported results for Q2 with 72 percent of the companies beating the mean earnings estimate and 70 percent bettering the sales projections. The blended earnings growth rate for the S&P 500 is 10.1% percent led by the energy sector. Investors are willing to pay more for this growth as the S&P 500 12-month P/E ratio sits at 17.7 vs. 5-year average of 15.4 and the 10 year average of 14.

Strong economic data

U.S. gross domestic product increased  from 1.4 percent in the first quarter to 2.6 percent in the second quarter, marching expectation. Gains in personal consumption, business investments and exports helped drive the improvement.

U.S. durable goods orders jumped 6.5 percent in July on a surge in civilian aircraft — the biggest increase seen since July 2014. Stripping out transportation equipment, orders were up just 0.2 percent.

Industrial production in the U.S. rose for a fifth straight month, bettering expectations. Overall industrial production rose 0.4 percent in July vs. expectations of a 0.3% increase.

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Strong gains by Verizon (Ticker: VZ) and AT&T (Ticker: T) helped push telecom shares higher, moving the sector out of the worst performers category. It is interesting to note that our sentiment indicators were positive on VZ and T ahead of their breakouts.

 

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Verizon: Sentiment indicator for July 2017.

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AT&T: Sentiment indicator for July 2017.

 

What could derail the rally?

While earnings and economic growth have been the key catalysts to this move, higher traders look to political uncertainty as a possible threat to the rally. One major concern is the threat that the government will run out of money if the debt ceiling is not raised by Congress in September.

North Korea continues to poke the beehive as well with its almost weekly missile tests.

Hard to fight the tape

As Q2 earnings continue to impress and economic data remains strong, it is hard to fight the price action in equities. Despite higher valuations and political uncertainty, equities seem poised to continue their assault on the record books, with (spoiler alert) the Dow now above the 22,000 mark. Clearly the advantage remains with the bulls.

 

Mike Coffey is head of Business Development, Intelligence at Q4 and has over 20 years experience in the capital markets. Mike is a monthly contributor to Q4 blog.

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