Year: 2018

The now $20-trillion U.S. economy grew at a 4.1-percent annualized pace in the second quarter, in line with forecasts. Personal consumption rose 4 percent.

Exports were responsible for 1 percentage point, or roughly 25 percent of growth. Economists believe this boost was temporary, caused by foreign importers rushing to buy ahead of tariffs. Third-quarter GDP may be in the 3 percent range if this is the case.

Nominal GDP increased by 7.4 percent, up 3.1 percent from the first quarter, and was largely overlooked by the press, but represents an important data point.  If interest rates remain low and nominal growth remains high, the total U.S. government debt outstanding will fall as a percentage of GDP.

Flash manufacturing PMIs for July showed a steady rate of expansion. Existing home sales hit forecasts at 5.38 million (annualized). New home sales missed estimates at an annualized pace of 631,000, in the mid-range of the expansion trend that started in 2010. Initial claims for unemployment were 217,000.

Earnings season was positive this week but featured high-profile misses. Facebook (FB) and Twitter (TWTR) both fell more than 10 percent after reporting slower user growth. Netflix (NFLX) shares are still down about 10 percent after reporting slowed subscriber growth two weeks ago.

There also was a significant rotation out of growth and into value shares this week. Financials, industrials and energy were the week’s strongest sectors. Airlines extended the transportation sector’s rise. Boeing (BA) and Caterpillar (CAT) both rallied on the week. J.P. Morgan (JPM), Bank of America (BAC) and Citigroup (C) also outperformed. The Dow Jones Industrial Average more than doubled the return of the S&P 500 Index on the week, while the Nasdaq and Russell 2000 both pulled backed from recent highs.

The U.S. dollar rallied this week after the European Central Bank reported rate hikes aren’t likely until after the summer of 2019. The spread between U.S. and German 10-year government bonds approached 30-year highs. Emerging markets outperformed as well. The Chinese government announced a small stimulus plan and measures designed to increase banks’ lending capacity. The news bolstered Chinese stocks but sent the yuan to a new 52-week low.

Equities moved higher on Monday with interest rates after Barclays hiked its second-quarter GDP growth estimate to 5.3 percent. The 10-year Treasury yield saw its largest one-day gain since mid-May.

This week will be light on economic data, but not on impact. Friday will bring the first estimate of second-quarter GDP. The Atlanta Federal Reserve will provide and update Thursday. It currently forecasts 4.5 percent growth. The economist consensus is at 4.3 percent. The New York Fed’s Nowcast model lowered its estimate last Friday to 2.69 percent. It’s highest forecast for this quarter was 3.26 percent on June 1.

Long-term bonds fell on Monday as economic forecasts were raised. iShares Barclays 20+ Year Treasury (TLT) declined 1.18 percent on the day.

Bank stocks followed interest rates higher. SPDR S&P Regional Banking (KRE) climbed 1.30 percent. SPDR Financial (XLF) rose 1.20 percent, by far the best performer. SPDR Technology (XLF) gained 0.51 percent.

Existing home sales increased at an annualized pace of 5.38 million in June, meeting forecasts. New home sales for June will be out on Wednesday. The flash PMIs for July will be out on Tuesday. Thursday will see durable goods and capital equipment orders for June. The University of Michigan’s consumer sentiment survey will be out on Friday.

The U.S. Dollar Index rallied on Monday, trading 1 percent below its 52-week high. The index has traded in a tight range of about 1.5 percent over the past two months. The dollar gained versus the euro and some emerging markets on Monday, while it weakened versus the yen.

Earnings season is in full swing this week. Companies that are scheduled to report this week combine for over $1 trillion in market capitalization. Overall, 35 percent of the S&P 500 Index will deliver earnings this week. The current rate of blended growth (reported earnings plus outstanding estimates) is 20.8 percent.

Google (GOOGL), Illinois Tool Works (ITW), Philips (PHG), Haliburton (HAL), TD Ameritrade (AMTD), Ryanair (RYAAY), AT&T (T) Verizon (VZ), 3M (MMM), Texas Instruments (TXN), United Technologies (UTX), Eli Lilly (LLY), Lockheed Martin (LMT), Biogen (BIIB) and Sherwin-Williams (SHW) are among the big names reporting in the first half of the week.

Later in the week we’ll hear from Facebook (FB), Visa (V), Boeing (BA), Coca-Cola (KO), PayPal (PYPL), GlaxoSmithKline (GSK), Gilead Sciences (GILD), United Parcel Service (UPS), Qualcomm (QCOM), Amazon (AMZN), Intel (INTC), Mastercard (MA), Royal Dutch Shell (RDS.A) Anheuser-Busch (BUD), Amgen (AMGN), McDonald’s (MCD), Altria (MO), Exxon Mobil (XOM), Chevron (CVX), Merck (MRK) and Abbvie (ABBV).

Transportation stocks led market performance this week with strong earnings reports from airlines and railroads. The Dow Transports climbed 1.85 percent. The Russell 2000, rose 0.58 percent.

Retail sales increased 0.5 percent in June and May’s growth was revised higher to 1.3 percent, making for an impressive two-month growth figure. Industrial production increased 0.6 percent and capacity utilization hit 78.0 percent.

The homebuilders’ confidence index held steady at 68. The volatile home starts figure missed estimates in June, but building permits remained strong. Weekly jobless claims fell to 207,000. Adjusted for population, this is by far the lowest weekly jobless claim figure of the past 50 years.

Federal Reserve Chairman Jerome Powell’s confident testimony combined with the stronger U.S. dollar pummeled gold. SPDR Gold Shares (GLD) declined 0.87 percent.

United Continental (UAL) advanced 12.22 percent this week following its earnings beat. CSX Corp (CSX) rallied 7.34 percent. The U.S. Global Jets ETF (JETS) climbed 2.62 percent.

Financials continued to advance throughout the week. SPDR Financials (XLF) gained 2.11 percent following solid earnings from Bank of America (BAC), Morgan Stanley (MS) and a buyback announcement from Berkshire Hathaway (BRK.A). Bank of America, Morgan Stanley and J.P. Morgan (JPM) all gained more than 4.5 percent this week. Berkshire Hathaway is the number-one holding in XLF at 11.5 percent of assets. It gained 3.23 percent on the week.

Industrials also performed well on the week. SPDR Industrial (XLI) rose 0.94 percent and SPDR Consumer Staples (XLP) rallied 0.23 percent. SPDR S&P Regional Banking (KRE) advanced 2.68 percent on the broader financial rally. First Trust Nasdaq ABA Community Bank (QABA) climbed 2.97 percent.

Netflix (NFLX) fell more than 10 percent at one point this week following its earnings announcement. Although it beat earnings estimates, it missed on subscriber growth. It also lowered third-quarter subscriber growth estimates in light of what appears to be at least a temporary slowdown in growth. Netflix finished the week above its lows, but down 8.78 percent.

General Electric (GE) lost 5.47 percent this week despite beating earnings estimates. Profits fell 30 percent from last year. Microsoft (MSFT) gained 0.80 percent this week after it beat earnings and revenue estimates. The software giant also lifted revenue guidance.