Market News – Week of July 24th, 2017

SO FAR SO GOOD ON SECOND QUARTER EARNINGS:

In order for stock prices to sustain their values, earnings need to increase in a healthy manner.  We are off to a good start for second quarter earnings reports.  15% of S&P 500 companies have reported and based on these reports, profits are projected to rise 8.6% from a year ago.  74% of the reports have beaten the consensus of analysts’ expectations, which is generally a driver for stock market increases.

BROAD, MODEST GAINS:

Rising oil prices and positive earnings reports in the U.S. and abroad fueled modest gains in stock prices in major indices across the globe this week.  For the week, the S&P 500* increased 0.54% (up 10.44% for the year).  The MSCI All Country X US* increased 0.39% (up 16.50% for the year).  The Barclays Global Aggregate Bond Index* increased by 0.94% (up 5.52% for the year).  The HFRX Global Hedge Fund Index* increased 0.24% (up 3.50% for the year).

TIMING THE MARKET:

Are we at or near the top of the market?  I don’t know.  On an analyst call I recently listened in on, data from 12 bull markets were reviewed.  These bull markets peaked in March 1937, May 1946, August 1956, December 1961, February 1966, November 1968, January 1973, November 1980, August 1987, July 1990, March 2000, and October 2007.  On average during the last 24 months of these bull markets, U.S. stocks rose 58%.  During the last 12 months of these markets, stocks rose 25%.  During the last six months, stocks rose 16%.  If we time the top wrong, we lose a significant amount of the bull market.  If you plan on timing the market, I hope you get it right!

NEW UNEMPLOYMENT CLAIMS DECREASING STILL:

Steadily, and over many years, the amount of people filing new unemployment claims has been decreasing.  In the week ending July 15, the amount of new claims was 233,000 bringing the four week moving average down to 243,750.

FINALLY SOME RELIEF FOR LOW EARNERS?:

Weekly pay for full-time earners in the lowest 10th percentile in the U.S. rose at a faster rate last quarter than for any other group according to the U.S. Labor Department.  The average pay for someone in this category has risen 3.39% from one year ago.  This is a clear indication of a tightening labor market.  This is the first time in seven years that this group’s gains have outpaced all others.

THE FUTURE OF CARS, AND CAR MANUFACTURING COMPANIES:

Beginning in 2005, traffic deaths consistently decreased year after year.  This changed in 2015 and 2016.  In both years traffic related deaths spiked.  Much of this is attributed to distracted driving.  In response, according to Morgan Stanley, the next ten years are going to see major changes in the automobile markets from both intensive safety regulations and innovation.  On the innovation front, several companies (Tesla, GM, Volvo, Ford, VW, BMW, Toyota) have announced that they will be launching autonomous cars between 2019 and 2021.  Apple intends to launch a car, which may be autonomous, by 2019.  Uber and Lyft are introducing autonomous taxis.  Google is testing autonomous cars on public roads as we speak hoping to make them widely available by 2020.

References:

TIMING THE MARKET:  BofA Merrill Lynch Global Research US Equity & Quant Strategy.
THE FUTURE OF CARS, AND CAR MANUFACTURING COMPANIES: Morgan Stanley.
NEW UNEMPLOYMENT CLAIMS DECREASING STILL: http://www.calculatedriskblog.com/2017/07/weekly-initial-unemployment-claims_20.html
SO FAR SO GOOD ON SECOND  QUARTER EARNINGS: https://horsesmouth.com/waiting-waiting-waiting-for-the-next-correction
FINALLY SOME RELIEF FOR LOW EARNERS?: https://www.wsj.com/articles/low-income-earners-see-weekly-pay-gain-faster-than-other-groups-1500543003