The Path Forward | July 27, 2018

It was a busy week–from corporate earnings to central bank meetings. What moved markets and what leads the path forward?

Earnings

The most dramatic shift as a result of earnings was in Facebook, as they fell 19% on Thursday. This came after their forward guidance warned of lower profits due to higher costs (likely security expenses). This led to downward momentum on tech, communication, and media stocks at the end of the week. Twitter and Intel also contributed to the downward momentum late in the week.

Economy

GDP rose dramatically to 4.1% for the second quarter (up from 2.2% in the first quarter). Partially on stronger domestic demand and also on an inventory draw down. This was either unexpected consumer demand or an attempt to front run third quarter tariffs.

Tariff Talk

Tariff concerns escalated on one front and decline on another. China blocked the merger of Qualcomm and chip maker NXP (likely in an effort to cause pain to the U.S.). On a brighter note, the E.U. and the U.S. made headway in trade negotiations that will remove existing tariffs on non-automotive industrial goods and increase the E.U.’s purchase of US agricultural products. Japan and the E.U. also struck a deal that will lead to an increase in Japan’s export of autos to the E.U.

Central Banks

The European Central bank left rates unchanged this month as expected. More importantly there was no shift in their projection of ending the purchasing program at the end of the year. They are likely to begin raising rates mid to late 2019. The coming week will bring more central bank news as Japan, the U.S., and the U.K. all have meetings.

In all, not a bad week. Concerns persist (as they always do) with trade wars, currency wars, and inflation. However, at this time, consumer strength, fiscal stimulus, and strong corporate earnings seem to be winning the day and likely pushing on through the remainder of earnings season.

 

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