U.S. markets closed mostly higher on Friday as better-than-expected economic news and a possible push to pass a stimulus bill kept the bullish sentiment intact. The House is slated to reconvene this weekend to try to craft a stimulus bill with the Senate in the process of assembling a “skinny” $300 billion bill.
The gains helped push the major indexes to fresh record highs with the Nasdaq and S&P 500 extending their weekly winning streaks to 4-straight. However, it wasn’t enough to help the Dow and the Russell 2000 as they closed lower for the week with the latter down for the 2nd-straight session.
The S&P 500 added 0.3% with the afternoon and record peak hitting 3,399. Blue-sky territory and lower resistance at 3,400-3,425 was challenged but held. A move above the latter would be an ongoing bullish signal for additional strength towards 3,450-3,475.
The Nasdaq was up for the 2nd-straight session and for the 4th time in 5 after adding 0.4% while testing a record high of 11,326. Uncharted territory and lower resistance at 11,300-11,400 was cleared and held. A close above the latter would indicate additional upside towards 11,500-11,600.
The Dow rose 0.7% following the late day trip to 27,959. Near-term and lower resistance at 27,750-28,000 was recovered. A close above the latter would suggest a retest towards 28,250-28,500 and levels from late February.
The Russell 2000 was down 0.8% with the midday low tapping 1,545. Beginning of the month and upper support at 1,550-1,535 was tripped but held. A move below the latter would indicate further weakness towards 1,525-1,515.
For the week, the Nasdaq soared 2.7% and the S&P 500 was higher by 0.7%. The Russell 2000 lost 1.3% while the Dow was down less than a point.
Technology was the strongest sector for the 2nd-straight session after jumping 1.3% while Consumer Discretionary and Industrials gained 0.5% and 0.4%, respectively. Energy and Materials after were the leading laggards after falling 0.6%.
Over the past 5 sessions, Technology (+3.6%) and Consumer Discretionary (1.8%) were the strongest sectors. Energy (-5.7%) and Financials (-3.5%) were the leading sector laggards.
The 2Q earnings season continues to wind down with 469 S&P 500 members, or 93.8% of the index have reported, and the Retail sector as the only one that has a significant number of reports still to come.
Total earnings for the 469 S&P 500 members that have reported Q2 results already are down -32.5% on -10% lower revenues, with 80% beating EPS estimates and 62.9% topping revenue estimates.
This is the lowest earnings growth pace since the last earnings downturn following the 2008 recession, although the proportion of these companies beating consensus estimates, particularly EPS estimates, is tracking above historical trends.
For the Technology sector, Q2 results from 91% of the sector’s market capitalization in the index are in the books. Total earnings for these Tech companies are down -3% on 3.5% higher revenues, with 91.7% besting EPS estimates and 78.3% beating revenue estimates. This is a bigger beats percentage than the same group in the preceding quarter.
Looking at Q2 as a whole, total S&P 500 earnings are expected to be down -33.5% from the same period last year on -9.7% lower revenues, with the majority of sectors expected to experience earnings declines and four sectors expected to lose money (declines in excess of -100%).
The four sectors that are expected to lose money in Q2 are Energy (-153% earnings decline), Transportation (-145.7%), Autos (-123.5%) and Consumer Discretionary (-101.6%).
The two sectors expected to have positive earnings growth in Q2 are Utilities (7.5% earnings growth) and Medical (3.5%).
For 2020 Q3, total S&P 500 earnings are expected to decline -24% on -3.6% lower revenues. This is an improvement from the -26.5% earnings decline expected at the start of July.
For full-year 2020, total earnings for the S&P 500 index are currently expected to be down -21.3% on -5.1% lower revenues. This is down from close to 8% growth expected at the start of the year, but better than the -24.1% decline a few weeks ago.
Growth is expected to resume next year, thanks to easy comparisons, but the dollar level of earnings in 2021 will still be below the 2019 level.
It is important to note that while full-year 2021 earnings for the S&P 500 index are currently expected to be up 25.4% from the 2020 level, the absolute dollar amount of 2021 earnings estimates remain below the 2019 level.
For the small-cap S&P 600 index, Q2 earnings from 550 index members have been announced. Total earnings for these small-cap companies are down -61% from the same period last year on -16.7% lower revenues, with 72.4% beating EPS estimates and 65.5% topping revenue estimates.
The proportion of S&P 600 members beating Q2 EPS and revenue estimates is significantly above historical levels, suggesting that estimates for the small-cap companies were even lower than their large-cap peers.
European markets closed lower across the board following disappointing economic news.
The Belgium20 dropped 1% and Germany’s DAX 30 gave back 0.5%. France’s CAC 40 was off 0.3% while UK’s FTSE 100 and the Stoxx 600 slipped 0.2%.
Eurozone IHS Markit flash Purchasing Managers’ Index slipped to a 2-month low of 51.6 in August from 54.9 in July, and below forecasts for a 55.3 reading.
Germany’s Markit’s flash composite Purchasing Managers’ Index fell to 53.7 from 55.3 in July, missing expectations of 55, and representing the first drop after 3 months of gains.
Asian markets settled mostly higher following mixed Flash PMI readings for Japan and Australia.
South Korea’s Kospi and Hong Kong’s Hang Seng rallied 1.3%. China’s Shanghai rose 0.5% and Japan’s Nikkei edged up 0.2%. Australia’s S&P/ASX 200 dipped 0.1%.
Japan Flash Manufacturing Purchasing Managers’ Index edged up to a seasonally adjusted 46.6 in August from a final 45.2 in the previous month, recording its slowest pace of decline since February. However, the manufacturing index stayed below the 50 threshold that separates contraction from expansion for a 16th month as output and new orders continued to contract.
Australian Services Purchasing Managers Index (PMI) sank to 48.1 from 58.2.
Existing Home Sales surged a record 24.7% to 5,860,000 in July from a revised 20.2% bounce to 4,700,000 in June. Forecasts were for a print of 5,400,000. Single family sales were up 2.39% to 5,280,000 versus the 19.3% increase to 4,260,000. Condo/coop sales were 31.8% higher at 580,000 following June’s 29.4% pop to 440,000. The months’ supply of homes dropped to 3.1 from 3.9. The median sales price climbed to a record $304,100 from $294,500. Sales have been boosted by pent-up demand and record low mortgage rates, as well as some shifting consumer demands resulting from the pandemic. Meanwhile, low inventories are supporting the record high sales prices.
PMI Services Index for August climbed 2.7 points to 53.6, better than expectations of 51.9, after rising 1.1 points to 50.9 in July. The output and new orders components improved to their strongest readings since January 2019. The August services index surged 4.8 points to 54.8 after jumping 2.1 ticks to 50.0 in July, and is up from 50.7 a year ago. The employment sub-index rose to 55.2 from 51 in July and is the highest since February 2019. The composite index increased 4.4 points to 54.7 in August versus the 2.4 point gain to 50.3 in July.
Baker-Hughes reported the U.S. rig count was up 10 to 254 with oil rigs up 11 to 183, gas rigs down 1 to 69, and miscellaneous rigs unchanged at 2. The U.S. Rig Count is down 662 rigs from last year’s count of 916, with oil rigs down 571, gas rigs down 93, and miscellaneous rigs unchanged at 2. The U.S. Offshore Rig Count was unchanged at 13 and is down 15 year-over-year.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 2nd-straight session and for the 4th time in 5 with the intraday peak reaching $166.33. Prior and lower resistance at $166-$166.50 was recovered. A move above the latter would indicate continued strength towards $167-$167.50. This area represents the gap lower from earlier in the month.
Rising support is at $166-$165.50 and the 50-day moving average.
RSI remains in an uptrend with key resistance at 50 holding. A more above this level would suggest additional strength towards 55-60. Support is at 45-40.
The S&P 500 Volatility Index ($VIX) had its 3-session winning streak snapped despite tagging an opening high of 24.47. Current and lower resistance at 24.50-25 was challenged but held for the 2nd-straight session. A close above the 25 level would suggest further upside towards 27.50-28 and the 200-day/50-day moving averages which just formed a death cross.
This technical pattern is typically a bearish development that signals lower lows. This would be, however, a bullish signal for the market and the continued assault on record highs.
Near-term and upper support at 22.50-22 was also breached but held on the late day fade to 22.06. A close below the 20 level and the monthly low at 20.28 would be important bullish signals for the market. This would confirm the death-cross pattern for lower lows with additional gap-down and backtest potential towards the 17.50-17 area and levels from late February.
The Wilshire 5000 Composite Index ($WLSH) was up for the 2nd-straight session and 4 of the past 5 with the 2nd half high kissing 34,770. An 8-session trading range remains in play with current and lower resistance at 34,750-35,000 getting cleared but holding. A close above the latter and last week’s all-time peak at 34,802 would be an ongoing bullish signal for a surge towards 35,250-35,500.
Support is at 34,500-34,250. A close below the 34,000 level would signal a breakdown out of the current range with additional weakness towards 33,750-33,500.
RSI has been flatlining for a couple of weeks with key resistance at 70 holding. A close above this level would suggest additional strength towards 75 and the early June peak. Support is at 65-60 with the latter holding since late July.
The Spiders S&P Homebuilders ETF (XHB) rebounded to snap a 3-session slide with the late day high tagging $53.79. Near-term and lower resistance at $53.50-$54 was reclaimed. A close above the latter and the recent all-time top at $53.95 would be an ongoing bullish signal for blue-sky upside towards $54.50-$55.
Support is at $52.50-$52. A drop below the latter would signal a possible near-term top with additional pullback potential towards $51.50-$51.
RSI is back in a slight uptrend with key resistance at 75 getting tripped and holding. Continued closes above this level would suggest another run towards 80 and overbought territory from January and earlier this month. Support is at 70-65.
The percentage of Nasdaq 100 stocks trading above the 50-day moving closed at 67.96% on Friday, down 2.91%. Upper support at 67.5%-65% was was challenged but held. A close below the latter would signal a retest towards 62.5%-60% and levels from late April. Resistance is at 70%-72.5%.
The percentage of S&P 500 stocks trading above the 200-day moving average settled at 57.11%, down 0.2%. Current and upper support at 55%-52.5% was challenged but held. A close below 50%, and a level that has been holding since mid-July would signal additional weakness towards 47.5%-45%. Resistance is at 57.5%-60%.