August 3, 2015 — Despite the S&P 500 extending losses into a fifth day last Monday, stocks reversed to end the week higher as Wall Street shifted its focus away from the Greek credit crisis toward U.S. corporate earnings. Global stocks tumbled on Monday as investors reacted to the sharpest decline in Chinese stocks in eight years. The Shanghai Composite plunged 8.5%, finishing the week down 10%. With the 2Q earnings season more than halfway complete, results have, so far, exceeded analysts’ original profit outlooks. Through Friday, 76% of large-cap, 73% of mid-cap and 64% of small-cap companies have beaten EPS expectations, while 52% of large-cap, 51% of mid-cap and 53% of small-caps have beaten sales expectations. Forward earnings guidance, however, remains problematic and has worsened over the quarter.
In domestic economic highlights last week, durable goods orders rebounded 3.4% in June, following two months of declines; the Conference Board’s reading of consumer confidence weakened substantially in July (90.9 from 99.8); and the first of three estimates for 2Q U.S. GDP growth came in at 2.3%. While the reading was shy of economists’ 2.9% consensus growth forecast, the Commerce Department revised its 1Q GDP figure from a 0.2% contraction to 0.6% growth. As expected, Federal Reserve policymakers left interest rates unchanged, but noted improvements in the economy and labor markets, suggesting rate liftoff may begin in September.
For the week, the Dow Industrials rose 0.69%, the S&P 500 rallied 1.19% and the NASDAQ Composite returned 0.79%. Nine of the ten major sector groups advanced over the week, with Utilities (+3.92%), Industrials (+2.47%) and Healthcare (+2.27%) the biggest gainers. Energy (-0.33%) lagged. Crude oil prices fell over 2% last week, sending the Bloomberg Commodity Index down 1.6%. Treasury prices rallied, pulling the yield on 10-year Treasury notes lower by 8.2 basis points to finish at 2.181%.