Stocks were mostly higher last week but some high-profile tech names took a hit.
For the week, the Dow gained 1.6% and the S&P 500 rose 0.6%, but NASDAQ dropped 1.1% after Facebook surprised investors with disappointing growth numbers during its second quarter earnings report, triggering a 19% decline in the stock on Thursday, the largest one-day loss in market capitalization in history. That was followed by big declines in other tech stocks on Friday, including Twitter, Netflix and Intel. Small and midcap stocks, which have been a relative safe haven on concerns about trade wars, lost some of their luster after President Trump reached a tariff deal with the European Union; they were also down more than 1% for the week.
European stocks had their best weekly gain since early March after the tariff deal was announced and the European Central Bank said it probably wouldn’t raise interest rates for another year. The broad-based Stoxx Europe 600 rose 1.7% while German stocks jumped 2.4%. The ECB confirmed that it plans to phase out its €30 billion ($35 billion) a month bond purchasing program by the end of the year but will likely hold its benchmark deposit rate at negative 0.4% until next summer. Stocks in Asia were also higher, with Hong Kong and Indian stocks gaining more than 2% for the week.
Global bond yields were higher for the second straight week on strong U.S. economic news. In the U.S., the benchmark 10-year Treasury note closed the week at 2.96%, up six basis points. The three-month bill closed at 2.00%, its highest level since before the financial crisis. Yields were also higher in foreign markets. The yield on the 10-year Japanese government bond, which rarely moves more than a basis point a week, jumped six basis points to close Friday at 0.10%, its highest level in more than a year.
The first estimate of second quarter U.S. GDP growth came in at an annual rate of 4.1%. While that was slightly below the Street forecast, it was also nearly double the first quarter’s upwardly revised 2.2% pace and the strongest number since the third quarter of 2014, when it hit 4.9%. The report was led by 4.0% growth in consumer spending. The Federal Reserve is likely to take the report as validation of its plan to raise interest rates at least two more times this year, although it’s not clear if the Fed will hike rates at its meeting this week.
Other economic reports were also mostly positive. The headline durable goods orders number for June came in below estimates at 1.0% growth, although that did represent a rebound from May’s upwardly revised 0.3% decline. A drop in military orders pulled down the overall number, but excluding that sector orders were up 0.4%, fairly close to forecasts. Core capital goods, a proxy for business investment, rose a better-than-expected 0.6%. The University of Michigan’s consumer sentiment index ended July at 97.9, down from the end of June but up from the mid-month reading of 97.1.
Housing remained in the doldrums as high prices kept a lid on sales activity. Sales of new homes fell 5.3% to an annual rate of 631,000, well below expectations of 668,000. Unsold inventory rose to a 5.7-month supply, the highest since last summer, despite a 4.2% drop in the median sales price to $302,100, which is down sharply from the recent peak of $335,400 in March. Sales of existing homes fell 0.6% to an annual rate of 5.41 million, the third monthly decline in a row. Yet the median price continued to rise to another new record, $276,900, up 5.2% over a year earlier. One positive note in the report was a 4.3% rise in the number of homes for sale, the first year-over-year increase in three years.
Reports/dates/facts/links worth paying attention to over the next week:
1. July 30: Pending home sales for June.
2. July 31: Personal income and outlays for June; Conference Board consumer confidence index for July; the Federal Reserve’s monetary policy meeting begins in Washington.
3. August 1: The Fed meeting ends at 2:00 P.M., followed by announcement; auto sales for July; Institute for Supply Management manufacturing composite index for July; construction spending for June.
4. August 2: Weekly unemployment claims; factory orders for June.
5. August 3: Employment situation for July; ISM non-manufacturing index for July.