Market Outlook – August 1, 2018

Main U.S. Benchmarks Post Solid Monthly Gains

 

The last trading day of July saw the main U.S. indexes post solid monthly gains. The Dow Jones Industrial Average and the S&P 500 Index registered their biggest monthly gains since January. The Nasdaq Composite Index climbed more than 2% in July to notch its fourth straight monthly gain.

The blue-chip Dow Jones advanced 108.36 points (+0.43%) to close at 25,415.19. with 3M Co. (MMM), Caterpillar Inc. (CAT), and Pfizer Inc. (PFE) leading the advance. The broader S&P 500 gained +13.69 points (+0.49%) as the industrials sector climbed more than 2%. The tech-heavy Nasdaq added 41.78 points (+0.55%) to finish at 7,671.79.

U.S. equities got a boost this month from strong corporate earnings and positive economic data. According to Nick Raich, CEO of The Earnings Scout, “The 2Q 2018 numbers for these 299 S&P 500 companies that have reported are better than how they reported last quarter in terms of year-over-year sales and earnings growth. There are also more companies beating estimates this quarter as well.”

U.S. and China in Talks to Defuse Trade Conflict

 

Bloomberg News reported that the United States and China, the world’s largest economies, are trying to revive talks in order to avoid a full-blown trade war. The report that the two countries are seeking talks to defuse an escalating trade conflict came out on Tuesday. Investors’ sentiment at Wall Street was lifted.

Sources said that U.S.Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He is talking privately about the matter. Peter Boockvar, chief investment officer at Bleakley Advisory Group, said, “It’s just an agreement to have talks. We don’t know where the talks go or whether they will be fruitful. They seem to be resuming high-level talks. We’ll have to see what comes of it.”

Apple Reports Strong Earnings

 

Apple Inc. (AAPL) did not disappoint investors. On Tuesday, the tech giant reported strong fiscal third-quarter results that are better-than-expected. Investors got their wish that Apple would renew optimism after Facebook Inc. (FB) and Twitter Inc. (TWTR) fell by more than 20% last week.

AAPL rose 4% in after-hours trading since the financial results are right in line with analyst projections of strong upsides for the quarter that ended June 30. EPS grew by 40% year over year with and revenue growing by 17% year over year.

The average selling price (ASP) of the iPhone, Apple’s flagship handset, climbed during the third quarter. A total of 41.3 million of the iPhones were shipped although the volume was flat from the year-ago period. However, the higher ASP ($724) was because of the iPhone X where the base model sells at $999.

Huawei Unseats Apple at Second Spot

 

Huawei just reached a major milestone as it passed Apple Inc. (AAPL) to become the world’s second largest smartphone seller. The Chinese smartphone maker beat the U.S. tech giant in smartphone sales for the first time.Research firms IDC, Canalys and IHS Markit said Huawei sold around 54 million phones last quarter which is 40% more compared to the same period last year.

Huawei also narrows the gap with market leader Samsung. The South Korean smartphone maker sold more than 70 million last quarter but it is 10% lower from the same time last year.

Tesla Takes Center Stage

 

One of the highly anticipated companies to report in this earnings season will take center stage after the closing bell. The Q2 earnings of Tesla Inc. (TSLA) will perhaps be the most closely watched earnings report in the company’s history.

The company just hit an important target for the production of the Model 3 which is its cheapest car model. But the electric carmaker is trying to contain mounting losses and prove to investors that it can avoid further production line problems. But the peculiar tweets of CEO Elon, as well as his outbursts against critics, are not helping.

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