Market Perspective for August 3, 2018

Despite opening the week with a loss of 1.5 percent, the Nasdaq rose 1.37 percent on the week after Apple (AAPL) delivered a strong earnings report.

Apple iPhone sales were flat in its fiscal third quarter versus a year-ago, but the average sales price jumped 20 percent, from $606 to $724 as sales of the more expensive iPhone X increased. Apple gained 8.91 percent for the week.

The July employment report missed expectations with 157,000 new jobs versus 195,000 expected. The closing of all Toys R Us stores caused a 31,000-job decline, or more than 80 percent of the miss. Average hourly earnings increased 0.3 percent, beating expectations, but the 12-month increase remains subdued at 2.7 percent.

June factory orders were in line with expectations of 0.7 percent growth. Motor vehicle sales slowed to an annualized pace of 16.8 million after automakers reduced their discounts in July. The Federal Reserve held rates steady, as expected, but upgraded its description of the economy to “strong.” The odds of a September rate hike climbed to 94 percent and the December odds hit 69 percent.

This week President Trump said the third round of tariffs on $200 billion of Chinese goods (round two hasn’t officially been implemented yet) could be as high as 25 percent, up from the initial 10 percent. The Chinese stock market and currency weakened all week. iShares China Large-Cap (FXI) fell 2.97 percent. Xtrackers Harvest CSI 300 China A-Shares (ASHR) declined 5.66 percent. China moved to defend the currency on Friday by raising margin requirements on forex traders. The yuan rebounded from 6.91 to 6.84 versus the U.S. dollar. China also retaliated with a list of $60 billion in U.S. goods that will be hit with tariffs should the U.S. follow through on its tariff threats. Among the goods targeted are liquefied natural gas, many agricultural products, machinery, natural resources, sports equipment, autos and auto parts.

The 10-year treasury yield spiked on the Fed’s policy statement mid-week but reversed the gains on Friday following the employment report. Crude oil drifted lower on the week and closed at $68.60 per barrel. The U.S. Dollar Index spiked on Thursday and closed above 95 for the first time since June 28.

Caterpillar (CAT), Pfizer (PFE) and Proctor & Gamble (PG) delivered impressive earnings this week. iShares U.S. Pharmaceuticals (IHE) rallied 2.79 percent on the week and SPDR Healthcare (XLV) was the best performing sector fund with a 2.15-percent gain. SPDR Consumer Staples (XLP) returned 1.70 percent. Although Caterpillar boosted industrials, Boeing (BA) pulled SPDR Industrial (XLI) lower by 0.21 percent.

As of Friday, the S&P 500 Index had blended earnings growth of 24 percent in the second quarter. One-fifth of the index has yet to report. If growth holds through the end of earnings season, it will be the highest growth rate in 8 years.


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