Week in Review
This week, stocks trended downwards despite positive earnings reports as rising COVID-19 cases, inflation and economic growth all weighed on investor sentiment. The S&P 500 and the Dow both slipped 0.4%, while the Nasdaq fell 1.1%.
Despite the recent decline, the major stock indexes recorded their sixth positive month in a row and now head into August with impressive YTD returns under their belts.
S&P 500
17.02%YTD RETURN
This week, stocks trended downwards despite positive earnings reports as rising COVID-19 cases, inflation and economic growth all weighed on investor sentiment. The S&P 500 and the Dow both slipped 0.4%, while the Nasdaq fell 1.1%.
Despite the recent decline, the major stock indexes recorded their sixth positive month in a row and now head into August with impressive YTD returns under their belts.
China
22.24%ALIBABA 1 YEAR RETURN
Panic selling gripped Chinese stocks early in the week as fears over a regulatory crackdown by the Chinese government continued to mount.
Although the sell-off centred around a new set of restrictions on Chinese for-profit tutoring companies, it’s the latest example of the communist party’s unwavering ability to destroy shareholder value with an unexpected decision.
Chinas largest tech names have all recorded significant losses in recent months. Alibaba, China’s largest e-commerce company, has now seen its market cap fall by over 300 Billion dollars since its market highs set back in October.
Big Tech
The mega-cap tech companies continued to produce mind-boggling revenue numbers this week. Apple, Alphabet and Microsoft all reported record quarters after the closing bell on Tuesday, with a combined profit of $57 billion in Q2, which equates to $626 million a day.
Google’s parent company, Alphabet, was particularly noteworthy, with advertising revenue up 69% year over year. YouTube alone generated $7 billion in revenue for the quarter.
While it’s easy to look at record high numbers in the stock market and assume a bubble, record earnings figures and improving fundamentals from the biggest hitters in the index will continue to act as a support, justifying further gains.
Stock Watch
Pinterest stock plunged 18% on Friday after reporting a 5% decline in global users last quarter as users move offline and into the real world.
Amazon, the poster child of the lockdown era, fell 7.6% Friday for its worst day in more than a year, dropping Jeff Bezos below French luxury mogul Bernard Arnault on the list of the world’s wealthiest people.
Market Outlook
Stocks fell in early trading today. Positive earnings reports were not enough to maintain all-time high numbers as rising COVID-19 cases, inflation and economic growth all weighed on investor sentiment.
This week will be the most important of the entire earnings season as all of Big Tech, which makes up over one-fifth of the S&P 500 index, will give investors a peek into their books.
The remarkable rebound in corporate profits and a recent drop in bond yields are helping to moderate U.S. equity valuations, bolstering the case for owning stocks.
Q2 earnings are predicted to continue to act as a support this week. Results are exceeding expectations once again- continuing the trend of the past several quarters. 87% of S&P 500 companies who have already reported have beaten estimates by an aggregate 19.1%- well above historical averages.
Federal reserve comments over the weekend should also help markets open higher. The FED reiterated their support for the labour market, stating that conditions would need to improve before reducing their bond purchasing program.
Despite this Fed support and earnings lift, uncertainty persists. Market participants will be keeping a close eye on the growing virus numbers. In Florida, there are currently more people hospitalized for Covid-19 than at any point during the pandemic. Growing Covid hospitalizations will undoubtedly dampen investor appetite over the short term.
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