Note: Our nightly “S&P 500 Outlook,Forecast, and Trading plan for Thu, 07/19” will be posted Wed, 07/18 night – please check back around 10:30pm/11pm EDT.
THE GIST (“THE WHAT”)
Better-than-expected earnings results drove the S&P 500 index to the levels last seen in January. Opening lower ahead of the Federal Reserve Chairman Jerome Powell’s second testimony before Senate Committee, the index bounced off the day’s low at 2805.89 (just about 1.5 points away from the trailing-stop our models’ long positions! click here for additional details), gaining momentum alongside his comments outlining a largely positive picture of the economy and the willingness to slow down on the pace of rate hikes if warranted by economic conditions.
Registering the day’s high at 2816.07 (again, just about 1 point away from the upperbound of the key range our models have been indicating for the last three days! click here for additional details), it however pulled back slightly as investors digested his comments which had otherwise no unusual surprises. Strong earnings reported by Financials and Industrials stocks supported the day’s gains offsetting weakness in Consumer Staples and Utilities stocks.
Gaining for the second consecutive day in a row, the index closed with modest gains near session highs at 2815.62, up 6.67 points and 0.24% above previous session close, and barely above the key 2815 level that our models have been monitoring! Regular readers would recognize that this has been yet another day when our models’ forecasts have been coming just under a point close to the actual market behaviour in many levels (high/low/closing)!
Gaining for the second consecutive day in a row, the index closed with modest gains near session highs at 2815.62, up 6.67 points and 0.24% above previous session close, and barely above the key 2815 level that our models have been monitoring! Regular readers would recognize that this has been yet another day when our models’ forecasts have been coming just under a point close to the actual market behaviour in many levels (high/low/closing)!
THE DETAILS (The “How & Why”):
The index got a lift alongside Jerome Powell’s comments in his second day of testimony on Capitol Hill. Reaffirming his plan to maintain the pace of the rate hikes; he also highlighted the risks of the tightening labor market and ongoing trade uncertainties. Meanwhile, the Federal Reserve’s Beige Book – central bank’s periodic review of the economy – highlighted the expanding economy but cautioned against rising costs of raw materials and growing shortage of workers that could constrain the economic growth. Investor reaction was mostly muted as it also warned against rising anxiety around increasing protectionism.
Extending gains for the third day in a row, Financials stocks led the day’s advances on the back of better-than-expected results reported by Morgan Stanley. Berkshire Hathaway Inc. soared 5.10%, to be the top gainer within the sector after it loosened restrictions on stock buybacks. The 10-year Treasury yields were relatively unchanged at the end of the session at 2.872% despite spiking following Fed’s Beige Book release.
Upbeat results by several transportation and airline companies lifted the broader Industrials sector by 1.13%. W.W. Grainger Inc., United Continental Holdings and CSX Corp. were the top gainers in the index, rising sharply by 11.16%, 8.79% and 7.08% respectively on exceeding expectations. Health Care, Energy, and Materials sectors also ended the day slightly higher by 0.08%, 0.03% and 0.02% respectively.
Dragging the index lower were several Consumer Staples stocks that fell on news of Goldman Sachs downgrading stocks of Clorox Co. citing high valuation and earnings risks in the rising costs environment. Clorox Co. and Molson Coors Brewing Co. were the worst performers of the day, down 4.07% and 3.96% respectively.
Other defensive sectors such as Real Estate, Telecommunication, and Utilities also shed 0.43%, 0.36% and 0.50% respectively. The Broader Technology sector also gave up 0.11% – led by a 3.06% fall in Twitter Inc. – after the social networking company was downgraded from outperform to neutral by Macquarie Research citing high valuations.