Friday, 27 July 2018

The technology sector, which was leading midway through the week, dropped after Facebook reported weaker-than-expected earnings with advertisement revenues significantly below expectations. 

Shares in the company plunged 19 percent for the biggest singleday decline in value of a U.S. publicly traded company in history. Facebook’s misstep raised concerns over other companies’ ability to generate similar revenues dragging the S&P 500 and the NASDAQ lower.

Some of the S&P 500’s losses were offset by the rise in energy stocks, which were lifted on the back of strong earnings as a result of relatively higher crude prices. The Dow Jones Industrial Average closed at its highest level in five months due to the rise in industrial stocks. Over a third of S&P 500 companies have reported thus far, and if the current trend continues, the index is on track to post over 20 percent year-over-year earnings growth for the second consecutive quarter.

Demand for government bonds weakens

Demand for government bonds weakened after trade tensions eased between the U.S. and the European Union. The yield on the 10-year Treasury note rose to 2.98 percent. The yield on the 2-year Treasury note, with the help of $35 billion in auctions, rose to 2.69 percent. 

GDP growth up, but housing market faces challenges

Friday morning’s blockbuster 4.1 percent GDP growth print for Q2 2018 was the highest since Q3 2014, and well above the 2.2 percent average since the “Great Recession.” According to IHS Markit’s preliminary PMI report, the U.S. economy continues to expand at a strong pace with both the manufacturing and service recording steady growth in July.Business investment also appears to be growing at a healthy rate as durable-goods orders rose for the first time in three months.

However, the housing market continues to face significant headwinds such as higher mortgage rates, increasing home prices, and limited inventory, driving both existing and new home sales lower for the month of June. Abroad, the European Central Bank announced that it would begin to wind down its bond buying program in December. However, the ECB will most likely leave its interest rates unchanged until next summer. ECB President Mario Draghi said the Eurozone economy was on a “solid” path but was in a “different position in the business cycle” than the U.S; highlighting the growing policy divergence between the world’s two largest central banks. 

The  Weekly Market Update is prepared by our Global Wealth Investments team to help explain changes in major market indices during the previous week and provide context for economic data.

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