Market Outlook – July 24, 2018

Dow Jones Extend Losing Streak


The second-quarter earnings season went full steam on Monday as the Dow Jones Industrial Average extends its losing streak for a third session. The blue-chip index shed 13.83 points (-0.06%) with 3M Co. (MMM) dropping 1.5%.

According to FactSet data, yesterday was the longest losing skid of the Dow Jones in July. But it was also the worst since the eight-session slide ended on June 21. Both the S&P 500 Index and the Nasdaq Composite Index gained but only slightly. The former advanced 5.15 points (+0.18%) while the latter managed to climb 21.67 points (+0.28%).

Only the financials, healthcare, and information technology sectors showed strength from out of the 11 major sectors of the S&P 500. The tech-heavy Nasdaq is less than 0.2% away from its all-time high of 7,855.12 registered last July 17.

The admonition of U.S. President against his Iranian counterpart Hassan Rouhani on Sunday could start a new round of geopolitical concerns. Rouhani warned Trump against pursuing a hostile policy towards Iran.

U.S. Home Sales Decline for Third Straight Month


The National Association of Realtors (NAR) reported on Monday that U.S. home sales fell for the third straight month in June. The persistent shortage of properties on the market drove house prices to a record high.

Also, the housing market lagged and was unable to cope with the acceleration in economic growth during the second quarter. Existing home sales slipped 0.6% to a seasonally adjusted annual rate of 5.38 million units in June.

May’s sales pace was revised down to 5.41 million units from the previously reported 5.43 million units. There are growing concerns that demand will slow down due to higher house prices and rising mortgage rates.

Alphabet Surprises Investors


Market analysts were expecting Alphabet Inc. (GOOGL) to report a $25.55 billion second-quarter revenue on Monday. However, the company surprised investors with $26.24 billion. As a result, GOOGL popped 3.6%% in after-hours trading.

Chief Financial Officer Ruth Porat said Google’s advertising business grew 24%. The growth was attributed to mobile and automated ads. Google was able to sustain brisk sales when it gave search ads more prominent space on mobile phones.

Its Android mobile software has been challenged this year. Only recently, Alphabet Inc. was fined a record $5 billion in Europe for regulatory violations. The company has grown its quarterly revenue by at least 20% year-over-year for 2 straight years.

A Stream of Earnings Reports on Tuesday


Investors will digest more earnings reports on Tuesday. Before the market opens, 3M (MMM), Eli Lilly (LLY), JetBlue Airways (JBLU), Kimberly-Clark (KMB), Lockheed Martin (LMT), Sherwin-Williams (SHW), Verizon (VZ) and Harley-Davidson (HOG) will present their respective quarterly earnings.

Investors are curious about Harley-Davidson which recently said it would shift some production out of the United States to avoid tariffs. The move of the motorcycle giant is in retaliation to the White House’s trade policies.

After the close, AT&T (T), Chubb (CB), and Texas Instruments (TXN) will parade their earnings.

Global Air Travel to Cost More in 2019


The cost of air travel is expected to increase in 2019. The strong global economy and rising oil prices will push the costs higher. Industry analysts see fares rising 2.6% with a corresponding 3.7% increase in hotel rates. But the same industry forecast mentions the downside risks from a trade war.

The Carlson Wagonlit Travel (CWT) and the Global Business Travel Association (GBTA) released the annual business travel forecast on Tuesday. Airfares in countries like Chile, Germany, India, New Zealand, and Norway are expected to rise by more than 7%.

The leading carriers are attempting to push up fares or add fuel surcharges just to maintain margins. Airline costs, including for Fuel and labor costs are included in airline costs.

The rise in hotel rates would be driven by an increased demand for air travel, which would boost demand for rooms. Room rates are expected to rise by more than 5% in Asia and Europe. The rates in North America will increase by 2.1% but fall by 1.3% in Latin America.

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