Craig Johnson’s

Market Commentary

Monday, August 4, 2014

Financial Markets Recap for Last Week:

·      The Dow Jones Industrial Average (DJIA) declined for the second consecutive week declining more than 2.5%. The DJIA has only been up once in the last eight trading days. Following a rally on Monday, the DJIA declined sharply during the next four days with the worst day being Thursday.

·      The Dow Jones Industrial Average is now slightly negative for the year.

·      The S&P 500 along with the Nasdaq 100 dropped more than 2% last week. The S&P 500 is up a bit more than 4% year to date, while the Nasdaq 100 is up just over 8%.

·      These two indices have been outperforming many of the other equity indices this year. They have benefited from institutions switching to large capitalization dividend paying stocks in their portfolios. This has been occurring throughout the year as institutions move away from the growth sectors that had fared so well last year and to the more conservative dividend paying stocks.

·      The small capitalization stocks have been hit the hardest this year. The Russell 2000 dropped over 2% last week and is down over 4% this year.

·      The release of second quarter earnings reports by a plethora of companies dominated individual stock trading last week. The financial markets did receive continuing evidence of an economy that is showing signs of growth as numerous economic reports were released.

·       A two day Federal Open Market Committee meeting concluded on Wednesday, but nothing was stated afterwards that surprised the financial markets.

·      The yield on the ten year U.S. Treasury note rose last week moving over 2.50%.

·      Gold dropped below the $1300 an ounce level, which had been a psychological support area, but more recently had also become a technical support area.

Financial Markets Health and Outlook:

·       This week the hectic pace of company’s earnings reports being released generally for the second quarter continues.

·       There will also be a flurry of economic reports being released potentially adding to the trend of better economic results being reported.

·       The stock market bias remains higher as we enter the last week of July. (Repeated from last week). The last two weeks of pullback from the July 24 high to Friday’s low was about 3.8% for the S&P 500. A normal size pullback or consolidation of recent gains.

·       The 8.8% decline for the Russell 2000 since its July 1 high is more reflective of a correction. It will be interesting to see if institutions switch back to the small capitalization area if the economy continues to show improved growth. More importantly for investors is whether there will be a shift back to the growth sectors?

·       The stock market could become more volatile over the next week or two as it is likely to bounce from the recent selling, but it remains susceptible to a retest of the low or even a somewhat further decline.

·       Support for the yield on the ten year U.S. Treasury note is at 2.40%. A significant break of that level could send yields down to the 2.10% area. (Repeated from last week). Keep in mind that signs of a stronger economy or growth in the inflation rate could begin to push yields higher, not lower.


 

Sources: bankrate.com, bloomberg.com, briefing.com, Dow Jones News, Financial Times, finviz.com, Investor's Business Daily, marketwatch.com, seekingalpha.com, Thomson Reuters/First Call, U.S. Dept of Treasury, yahoo.com and individual company web sites and press releases.

Leonetti & Associates, LLC views or opinions are as of a certain date and subject to change without notice.  The material contained herein is for informational purposes only and obtained from sources we consider reliable. We make no guarantee as to its accuracy or completeness.  References to specific securities and industries/sectors should not be considered recommendations to buy or sell any security or advisory service.  Past performance is not a guarantee of future results.

Index