This week brought new signs of economic recovery in the eurozone, growing strength in the United Kingdom, a raft of positive Chinese data that could keep that economy afloat and a narrowing US trade gap and budget deficit. All of this points to a likely boost to global growth. However, financial markets began to focus again on the US Federal Reserve's possible withdrawal from its bond-buying program after comments by Fed officials.
The US economic recovery remains weak, however, despite signs of progress. While US corporate profits are growing, company revenues remain more constrained. Of the first 435 S&P 500 companies to report quarterly earnings, 72% beat analysts' expectations, while only 56% reported better-than-estimated revenues.
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During the week, government bond yields trended slightly downward, with the 10-year US Treasury easing back from last week's 2.71% to below 2.60%. The price of oil tumbled from $108 a barrel to $102 before rebounding above $104. US crude oil supplies remain relatively high, and North Sea oil production is expected to pick up soon, after seasonal maintenance work.
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Movements of major stock benchmarks were muted this week after recent rallies. The US still appears to be "tired" or by other estimates "overcooked." The S&P remains resilient and doesn't seem at risk of a material pullback but continues to exhibit signs of fatigue and is having a tough time staying above 1700. The index has been bumping around between 1680 and 1700 since 7/15. However, the performance discrepancies lately (in particular Europe/commodity-linked outperformance) are getting more focus and people are starting to wonder whether a more activist approach is required in the present market. Some are looking to increase exposure in Europe (specifically Germany EWG) and/or emerging markets and commodity exposure and not simply be overweight US stocks.
U.S. stock indexes declined Friday, with the Dow Jones Industrial Average halting its longest weekly winning streak since August of last year.
The Dow Jones Industrial Average halted a six-week winning stretch, its longest since one that ended Aug. 17, 2012. It declined as many as 152 points Friday, but ended with a loss of 72.81 points, or 0.5%, at 15,425.51, leaving it down 1.5% on the week.
After rising to a session high of 1,699.42, the S&P 500 index fell 6.06 points, or 0.4%, to 1,691.42, off 1.1% for the week, with telecommunications leading sector declines and materials faring the best. After mounting a second attempt at taking out the 1,700 level and failing, technical selling fueled its decline today.
The S&P 500 index last Friday closed at a record 1,709.67, a day after finishing above 1,700 for the first time. It's still up nearly 19% for the year.
For the past several years, stock-market bulls have been able to argue that stocks are cheap, but that argument is increasingly on shaky ground. Stocks within the S&P are now trading at their highest P/E multiples in over four years, and above their average over the last 10 years. Currently trading at 14.5 vs. 14.2, it appears as if valuations have started to get ahead of fundamentals.
The Nasdaq Composite shed 9.02 points, or 0.3%, to 3,660.11 and off 0.8% from the week-ago close.
Decliners ran slightly ahead of advancers on the New York Stock Exchange, where nearly 634 million shares traded.
Composite volume surpassed 2.9 billion.
