S&P Likely to Rise Further

The current market uptrend may have come a long way but stocks are still likely to clip higher levels next week if earnings reports continue to promote the current market sentiment with higher-than-expected values which strengthens the conviction that the recovery of the US economy is very much in the picture. The S&P 500 rose by 3.6% in July as it maintained a five-month gain streak that places its 2016 gains at 6.3%. The Dow Jones Industrial average on the other hand reached a six-months winning streak in July as it appreciated by 2.8% in July to rise by 5.8% this year, with the Nasdaq Composite also growing by 6.6% in July growing by 3.1% this year.

“The market has been expecting earnings to be C or C+, but so far this quarter earnings have been a B-,” stated Jack Ablin, the Chief Investment Officer at BMO Private Bank, further adding that, “economic indicators are however expected to hold a stronger effect on the US stock market in light of the absence of high-profile earnings”.

Currently, an estimated 63% of all the S&P 500 companies have made their quarterly earnings report public, 71% of them have reported very positive earnings that were higher than the forecasted numbers. “The percentage of companies turning in better-than-expected earnings per share is above the 1-year average of 70% and 5-year average of 67%,” said John Butters senior earnings analyst at FactSet.

Investors are now heavily pressured to stay in the loop of all corporate happenings in the weeks ahead as more than 100 S&P 500 companies are slated to release financial results. Some notable companies on the calendar are General Motors Co., Time Warner Inc., Kraft Heinz., Priceline Group Inc., Costco Wholesale Corp., American International Group Inc., Pfizer Inc., and Humana Inc.

“Even the fact that the S&P 500 moved within a daily band of 0.92% over the past 11 days — the narrowest range in over 45 year s — is a positive sign as tight ranges like we are in now tend to resolve higher,” said Ryan Detrick, senior market strategist at LPL Financial.

“The best case scenario after the breakout through 2,135 was to do just this — constructively digest the move,” Frank Cappelleri executive director of institutional sales at Instinet said in a note, as he holds a strong conviction that the market is acting exactly the way it should as it is being subjected to the still unravelling aftermath of the “Brexit”.

Major upcoming fundamental releases include the consumer spending and inflation for June, the ISM manufacturing for July and the Non-Farm Payrolls also for July. Another release that investors interested in a better view of the labour market is the July jobs data which is due on Friday, especially after the poor report released in May was followed by an above average employment growth in June.

Despite the poor gross domestic product reported for the second quarter, a flow of good fundamental indicators could raise anticipations for an increase in interest rates after the Federal Reserve Bank comments this week that economic risks have declined.