By Scotia Wealth Management - The Zukiwsky Group

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Market Watch: July 26

Jul 26, 2019 | 2:42 PM

Big Picture

U.S. Markets Buoyed by Positive Earnings But Lose Ground Thursday

A number of strong earnings reports lifted U.S. stocks on Tuesday, while the British pound fell after Brexit hardliner Boris Johnson became leader of Britain’s Conservative Party, clearing the way for him to become prime minister on Thursday. With Johnson at 10 Downing Street, credit ratings agency Moody’s warned the risk of a no-deal Brexit had increased.

The S&P 500 and Nasdaq hit record closing highs on Wednesday, as chip makers rallied, helping both indexes overcome earlier losses after disappointing earnings from Caterpillar and Boeing, which left the Dow in the red for the session. So far, corporate earnings have mostly exceeded expectations, giving major U.S. stock indexes a boost this week, although U.S. markets lost ground Thursday . Of the 138 S&P 500 companies to release results by Wednesday, nearly 80% have exceeded analysts’ projections.

The European Central Bank on Thursday signaled its intention to cut short-term rates and possibly renew its monetary easing program in an attempt to help bolster a tepid eurozone economy. The move comes as the U.S. Federal Reserve looks ready next Wednesday to cut interest rates for the first time in a decade. Most investors expect the Fed to announce a cut of 25 basis points. Earlier in the week, the International Monetary Fund cut its global growth forecast for 2019, citing concerns about the ongoing trade war between the U.S. and China, and the increased prospect of Britain crashing out of the EU without a deal. This Friday the U.S. will release its GDP report. Economists are forecasting 2% GDP growth for Q2, well off the pace from Q1’s 3.1% rate, which was skewed to the upside by rising business inventories.

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Turning to Canada, the TSX started the week off strong, with three straight days of gains, but surrendered ground on Thursday amid downbeat earnings from key names in the materials and energy sectors.

Markets

N.A. Markets Mixed After Surrendering Ground Thursday

For the four days covered in this report, the Dow declined 13 points to close at 27,141, the S&P 500 rose 27 points to settle at 3,004, while the tech-heavy Nasdaq climbed 93 points to close at 8,239. In Canada, the TSX was flat–up just 2 points to end at 16,488.

Equities/Strategy

Strategy

Global growth challenged heading into 2H2019 – The International Monetary Fund (IMF) lowered its forecast for 2019 global GDP growth to 3.2%, down from 3.3% in April and 3.6% at the end of last year. Downward revisions were centered on emerging economies with China, Turkey, and Brazil all receiving notable downgrades. Global conditions have improved marginally in recent weeks with a new trade truce between the U.S. and China and the resumption of negotiations, and the U.S. Federal Reserve and European Central Bank are both leaning toward more accommodative policy stances. Nevertheless, considerable risks remain in the second half of the year with Brexit, a potential sales tax increase in Japan, and on-going trade-related headwinds. The IMF’s projected pickup in growth in 2020 could be vulnerable to downward revisions as it assumes stabilization in stressed emerging market economies, progress toward an eventual resolution of global trade disputes, and buoyant financial market sentiment.

(Bill Curry)

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