Market Perspective for July 28, 2014

While last week was heavy on corporate earnings, the release of economic data will be the focus over the coming days. Second quarter GDP will be announced on Wednesday along with the results of this week’s Federal Open Market Committee meeting. The Fed is nearing the end of its taper process and this will be the second to last meeting before its scheduled October exit. There’s unlikely to be any surprising or drastic changes as data has been relatively consistent.

Earnings will remain important, but we have passed through the halfway point in terms of the major reports. There are still a number of blue chips reporting, but down from the influx we saw over the past few days. Proctor & Gamble (PG) and Exxon (XOM) will be two companies to pay attention to.

Overseas, Chinese stocks rallied sharply as investors have quickly become more optimistic over government stimulus efforts. GDP growth rates increased from the first to second for many provinces, while buying restrictions have started to ease. Industrial metals and mining shares have also rallied on expectations of stronger Chinese growth. Whether sustainable growth materializes is another issue: the second quarter growth rate was boosted in part by having local governments move their development projects forward, spending all of their annual investment budgets in some cases. Nevertheless, because China is a large component of many emerging market funds, this will provide a positive start to the week for those shareholders.

Year-to-date, the S&P 500 Index remains the top performing index, up 7.03 percent. It is closely followed by the Nasdaq, which has gained 6.54 percent. The past few weeks have been strong for technology stocks and that has made the Nasdaq the best performing index over the past 4 weeks and 3 months. The Dow Jones Industrial Average is up a decent 2.32 percent, and the MSCI EAFE follows closely behind, up 2.31 percent. The Russell 2000 remained the outlier, down 1.63 percent this year.

Economic Reports: This will be a big week for economic data. GDP comes out on Wednesday and analysts are looking for 3.2 percent growth. There is quite a range of estimates though, ranging from about 2.6 percent to 3.5 percent. Solid growth around 3 percent is still expected, but some economists trimmed their forecasts. The market is already looking towards stronger growth during the second half and an upside surprise would reinforce the positive outlook.

Domestic auto sales and July unemployment will also be released on Friday. The PMI numbers for several countries will also be reported.

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