RECAP For the week ending July 15th, 2016

July 18, 2016

The large-cap stock benchmarks established a series of new highs during the week, as investors reacted to encouraging developments overseas. The smaller-cap benchmarks and the technology-heavy Nasdaq Composite remained below the records established in 2015, but the gains helped the Nasdaq join its peers in positive territory for the year to date. The small-cap Russell 2000 Index, which is typically more volatile, saw the biggest gain for the week.

Stocks marched higher from the start of the week’s trading. Hopes for more central bank stimulus from Japan also played a role and some positive economic and stimulus signals from overseas helped Wall Street maintain its momentum as the week progressed. Aluminum giant Alcoa, which is typically the first major company to release quarterly earnings, surprised investors by reporting a smaller-than-expected decline in quarterly profits, helped by strength in the commercial aerospace and auto markets. More good early news on earnings came Thursday, when banking giant JP Morgan beat expectations, thanks largely to cost reductions, although it also saw an overall decline from the same quarter a year ago. Retail sales rose 0.6% in June, much above expectations. Industrial production for the month of June also beat expectations and rose 0.6%, thanks primarily to increases in the output of motor vehicles and utilities.

EUROPE: on Thursday, the Bank of England surprisingly kept its benchmark lending rate steady at 0.5%, but the bank telegraphed that there would likely be a loosening of policy in August. Many investors, given the economic fallout from the Brexit vote, expected an interest rate cut. Developed market government bond yields pulled back from record lows following the decision. The UK 10-year government note yield rose back above 0.80%. All of these contributed to the positive gains for the week. Conservative Party leader Theresa May was appointed UK’s newest prime minister, replacing David Cameron, who resigned following the fallout from the Brexit vote. Financial markets generally reacted favourably to May as investors appeared to bet that she would instill some clarity in the political future of the UK and its exit from the European Union (EU).

DeGroote on Facebook DeGroote on Twitter WMA LinkedIn