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Market Commentary > August 7th, 2017 - Market Update

August 7th, 2017 - Market Update

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Peak second quarter earnings season is being supplanted with peak vacation season as we head into the heart of August. U.S. and international larger companies posted gains while smaller companies and bond yields fell slightly on the week. The S&P is now up over 10% on the year, driven by the technology and healthcare sectors. Seven of eleven economic sectors are either beating or slightly lagging the market which is indicative of decent market breadth. Only energy and telecom sectors are down on the year.

Companies are benefiting from a weaker dollar, stronger spending, and several years of cost cutting. Thomson Reuters sees 11% profit growth for the S&P 500 in Q2 after a 15% rise in Q1. FactSet says the revenue 'beat rate' of 73% is the strongest pace since they began tracking the data in 2008. Top line strength of that magnitude is certainly a good sign.

High yield spreads are under 3.5%, close to post crisis lows. Bloomberg noted caution now that many junk bond yields are below the issuer's cost of leverage.

Republicans will have just 12 working days when they return in September to address the debt ceiling, or risk running out of money to pay its bills. It is estimated that the Treasury will run out of money on September 29th.

Mark Carney, the head of the Bank of England, issued a somber economic forecast citing some pessimistic concerns surrounding Brexit. They kept rates unchanged despite inflation running at 2.6% - markets were expecting a more hawkish tone from Carney. The pound fell in response.

The Fed's Loan Officer Survey improved from 1% at the beginning of Q2 to 3.5% for Q3. More of a lagging indicator, this can be seen as confirmation of the economic/credit cycle turn earlier this year.

Perhaps spring loaded from 2 years of QE bond buying, the Euro is now the strongest performing G10 currency this year and sitting at a three year high versus the U.S. dollar. Meanwhile, The U.S. dollar touched a 14-month low last week, now off over 10% from its peak on January 3.

Profit growth and business friendly de-regulation have been driving risk markets. Thus far, the Office of Information and Regulatory Affairs has approved just 41 regulations, on pace for less than 100 all year. This would be less than 20% of the last republican administration (GW). 469 regulatory actions from Obama's fall 2016 agenda have been withdrawn and the Federal Register of regulations is on pace to fall from 97k to 67k pages, comparable to the full deregulatory push from 1980-1986 under Ronald Reagan.

The Institute for Supply Management's manufacturing and non-manufacturing surveys both missed expectations but both remain well in expansionary territory at 56.3 and 53.9 respectively. The ISM Composite did fall significantly on the month but, at 53.9, is still at encouraging levels.

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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by radical promoting and their editorial staff based on the original articles written by jeff cutter in the falmouth enterprise. This article has been rewritten for Scott Mooreand the readers of Moore's Weekly. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.