Last week, markets marched ahead within a busy reporting week. The Dow rose 1.16% to close Friday on another new high. The S&P 500 notched a record high during the week, despite closing the week slightly down 0.02%. Meanwhile, the NASDAQ slipped 0.20%.
Generally strong corporate earnings reports helped markets continue to hit highs. The majority of companies that have posted Q2 earnings so far have beaten their estimates. Those earnings performances helped push financials, materials, and energy stocks up by over 1% early in the week. Health care companies also posted substantial earnings as S&P 500 health care stocks have risen 16% this year. Health insurer stocks have also increased by 22%.
Additionally, Q2 Gross Domestic Product (GDP), consumer confidence, exports, housing, and oil all reported noteworthy developments.
A Rundown of Last Week's Developments
Solid GDP Performance: For the second quarter, GDP came in at a 2.6% annualized rate - one of the strongest quarters in the last 2 years. GDP growth was based on robust consumer spending for durable and nondurable goods. In addition, business investment hit a solid 5.2% annualized increase for the quarter.
Healthy Consumer Confidence: Consumer confidence remains quite high with the index rising in July almost 4 points to 121.1. The index beat the optimistic estimate of 118 and has jumped approximately 20 points since last November's election, staying near March's 17-year high of 124.9. In addition, the consumer sentiment index moved up modestly the last two weeks of July to end at 93.4.
Decent Export and Import Numbers: Food products and capital goods helped exports rise by 1.4% in June. Further, wholesale and retail inventories both jumped 0.6%. Imports, however, fell 0.4% on lower industrial supplies and consumer goods.
Mixed Home Sales: A tight labor market and low mortgages continue to spur demand for housing. In June, new home sales recorded a strong 610,000 annualized rate. Meanwhile, existing home sales dropped 1.8% in June to an annualized rate of 5.5 million, which was lower than anticipated. Existing home prices, however, were up 6.5% year-over-year, with a median price of $263,800.
Better Oil Prices: Oil prices rose this week, hitting the highest weekly percentage gains this year. Prices strengthened with news of shrinking U.S. crude and gas inventories, along with foreign efforts to reduce output.
What Lies Ahead
The Fed observed in its meeting last week that risks to the economic outlook seem stable. In its analysis of the economy, the Fed pointed to moderate economic growth, a sturdy employment environment, and positive business investments. As expected, the Fed did not increase interest rates but suggested that unwinding its $4.5 trillion balance sheet could begin as early as September.
This week will again offer key economic data to help provide a better understanding of market performance in June and early indicators for July. As always, we are here to answer any questions you may have about our economy and your financial life.
Quote of the Week
"All our dreams can come true, if we have the courage to pursue them."
Golf Tip of the Week
Use Words and Rhythm to Drop the Ball in the Cup
Sometimes, golfers just can't find the right rhythm when putting. Without smooth rhythm, jerky and abrupt movements affect the putter face's orientation at impact, and ultimately, the ball's speed. When the putt is longer, the challenges compound and require extra effort to drop the ball in the hole.
Fortunately, you can fix your putt by practicing your swing to the rhythm of three syllables: "perfect pace."
- Take putter back: As you swing back, say the word perfect in your mind, and align your swing to its two-syllable rhythm.
- Swing putter through: When you swing forward, think the word pace in your mind. Align your swing to its one-syllable rhythm.
No matter if you're practicing a short or long stroke, this exercise will help your swing support the right rhythm to drop your ball in the cup. Always remember: Focus on the process, not the outcome.
Tip courtesy of GolfDigest
Financial Question of the Week
Am I holding too much cash?
Many investors hold large amounts of cash as they await the next market downturn and seek safety of principal. But is this the best strategy?
Although return expectations for investments aren't what they used to be, by staying overweight cash, you may be missing out on years of compounding returns. And cash is not just earning little to no return, it will also lose purchasing power during times of inflation. While keeping some cash in your portfolio can be a good thing, it is extremely easy to make the mistake of keeping too much cash for too long.
The amount of cash you hold should be dependent on:
- Your emergency reserve need (Typically 3 - 6 months of expenses)
- Your short and long term financial goals
- Your risk tolerance
Although many investors use large cash positions to manage risk, this is not a prudent investment strategy. There is a large world of alternatives available to risk averse investors that may better help them to accomplish financial goals.
Please contact our office if you would like to review your financial position, determine an appropriate amount of cash reserves to maintain, and discuss prudently investing any excess cash utilizing investment programs that are in your best interests and aligned with your risk tolerance.