Market Perspective for July 29, 2016

The Dow closed the week nearly flat to finish July with a 2.8-percent gain, while the S&P struck a new all-time high of 2177.13 during intraday trading before dipping 5 points just before the close, ending July up 3.6 percent.  Technology shares pushed the Nasdaq 1.2 percent higher on the week following strong earnings   from Microsoft (MSFT), Apple (AAPL), Facebook (FB), Amazon (AMZN) and Google parent Alphabet (GOOG).

Although the Nasdaq is still off its all-time high, this week’s close marked a new 52-week high and a 6.6-percent gain on the month. Facebook reached a new all-time high last week, while Apple traded above $100 per share for the first time since April. Facebook rallied after earnings came in at $0.71 per share, almost triple-year ago levels. Apple earnings fell from 2015 as expected, but it beat estimates by several cents. Amazon’s cloud services continues to drive earnings and investor optimism and Alphabet (GOOG) far exceeded estimates with revenue of $21.5 billion.

SPDR Biotech (XBI) gained more than 3 percent. Large-cap biotechnology advanced following a positive earnings report and raised guidance from Amgen (AMGN).

Weak blue-chip earnings and falling energy prices weighed on the broad indexes. Ford missed its profit targets and second-quarter sales fell 9 percent from the year-ago period. Boeing reported a second-quarter loss and announced the possible end of its 747 family of aircraft due to slumping sales. Verizon (VZ) was lower due to its buyout of Yahoo (YHOO). Declining soda sales in the U.S. lowered Coca Cola (KO) shares. Caterpillar (CAT), however, rose 5 percent after beating estimates.

Crude oil fell as low as $40 per barrel during the week after an increase in oil and gasoline inventories. Exxon missed estimates of $0.64 per share in profit, reporting $0.41 per share on Friday. Exxon fell to its lowest level since April following the announcement.  Energy shares held up relatively well though, with SPDR Energy (XLE) down only about 2 percent.

Although the Federal Reserve left interest rates steady as expected, many analysts interpreted the accompanying statement as hawkish. Barring an unforeseen upsurge in the economy or inflation, rates are not likely to change at the next meeting in September. The Fed’s statement didn’t elicit any significant changes in the interest rate futures market.

Housing continues to benefit from historically low mortgage rates. New home sales rose to an eight-year high as prices climbed more than 5 percent from last year. U.S. weekly unemployment claims were greater than expected, but remain near historic lows.

Second-quarter GDP growth in the U.S. disappointed, coming in at 1.2 percent. First-quarter GDP was also revised lower to 0.8 percent growth from 1.1 percent. The second-quarter GDP estimate will be revised as more complete data accumulates. The Atlanta Fed’s GDP Now Model forecast slid from 2.4 percent to 1.8 percent following GDP estimates.  Given the accuracy of the Atlanta Fed’s model over time, GDP estimates are likely to be revised higher.

Vanguard closed the popular Dividend Growth Fund (VDIGX) to new investors this week. Dividend funds have been extremely popular with investors in recent years and VDIGX outperformed the Large-Blend category by an annualized 1.93 percent over the past 5 years. Current investors will not face any new purchasing restrictions. VDIGX currently has a Power Index of 92 and a Strong Buy rating in the Investor Guide to Vanguard Funds. If you have any questions about this closure, please call us at 844-336-9878.

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