Note: Our nightly “S&P 500 Outlook, Forecast, and Trading plan for Mon, 07/23” will be posted Sunday, 07/22 night – please check back around 10:30pm/11pm EDT.
THE GIST (“THE WHAT”)
Opening flat in Friday’s session, the S&P 500 was pulled back following an early morning tweet by President Trump criticizing the European Union and China for manipulating their currencies and interest rates. Sentiment however improved with Technology stocks gaining a bullish momentum as stocks of Microsoft Corp rose to their all-time highs overshadowing escalating trade war concerns.
The index pulled back on reaching the day’s high at 2809.70 (just under half a point away from the upper bound of the key range our models have been pointing for a bullish consolidation! Click here to read the full report) in the afternoon session weighed down by disappointing earnings reports, registering the day’s low at 2800.01 (again, testing our models’ indicated support level of 2800 for second day in a row).
Struggling for direction and flipping between slight gains and losses in a tight trading range, the index closed lower for the second day in a row near session lows at 2801.82, down only 2.66 points and losing a slight 0.095% over previous day’s close.
THE DETAILS (The “How & Why”):
Primarily driven by mixed earnings, eight out of the eleven primary sectors ended Friday’s session lower. The index was barely changed at the end of the week, albeit in green for the third straight week in a row, up only 0.51 points as the second round of earnings provided the much needed support to the index in the face of escalating trade tensions.
Investor reaction to President Trump’s tweets remained mostly muted and driven primarily by mixed earnings results. While Microsoft Corp. helped lift the broader Technology sector, Cintas Corp., VF Corp. and Honeywell International Inc. were the top gainers in the index, up 5.11%, 4.15% and 3.79% respectively on upbeat second quarter earnings.
Financials stocks led the day’s advances with a 0.20% gain. Limiting gains within the sector was a sharp 7.41% fall in stocks of State Street Corp. on announcing its acquisition of Charles River Systems, a provider of investment data and analytics software. It was the best performing sector with a weekly gain of 2.22% supported by upbeat results by big banks. Flattening yield curve however remains a cause of concern.
Treasury yields inched up after President Trump criticized the recent rate hike policies by the Federal Reserve for the second day citing high interest rates that could negate benefits from the recent fiscal stimulus efforts by his administration. While the 10-year Treasury yield rose by 5 basis points to 2.90%, the short-term 2-year Treasury yields settled unchanged at 2.60%, further narrowing the yield gap.
Technology sector got a major boost at the session open as stocks of Microsoft Corp. reached record highs after reporting strong growth across all its business segments. The sector however ended the day only slightly higher by 0.09% as gains faded during the afternoon session. Stocks of Philip Morris International Inc. rose 4.22%, erasing last session’s losses on weaker earnings report lifting the broader Consumer Staples by 0.59%.
On the other hand, yield sensitive Real Estate and Utilities sectors were the worst performers in today’s session, down 0.92% and 0.76% respectively. Trade sensitive Telecommunication, Materials and Industrials were all down 0.49%, 0.41% and 0.11% respectively weighed down by President Trump’s early morning tweet reiterating his concern over a strengthenin
g dollar and criticizing European Union for manipulating their currencies and pushing the dollar value higher. He also hinted at his willingness to impose tariffs on all of $500 billion of Chinese imports in an effort to seek a favorable trade deal.
g dollar and criticizing European Union for manipulating their currencies and pushing the dollar value higher. He also hinted at his willingness to impose tariffs on all of $500 billion of Chinese imports in an effort to seek a favorable trade deal.
Financials and Industrials were the best performing sectors this week gaining 2.22% and 0.88%, offsetting a sharp weekly decline of 1.84% and 1.56% respectively in Telecommunication and Real Estate sectors. With a weekly loss of 1.89%, Energy sector was the biggest drag on the index with oil prices settling lower for the third week in a row.