RECAP: for the week ending July 29th, 2016

the technology-heavy Nasdaq Composite Index and the smaller-cap benchmarks recorded a fifth consecutive week of gains. The S&P MidCap 400 Index moved further into record territory and has performed best for the year to date, but the Nasdaq saw the biggest weekly gain, pushed along by strong performances by Alphabet (Google) and Amazon. Over one-fifth of the companies in the S&P 500 reporting earning results on Wednesday and Thursday which led much of the speculation. Oil prices declined to a three-month low by the end of the week, which took a toll on energy stocks and weighed on sentiment generally. Investors also paid attention to the Federal Reserve meeting on Wednesday and the Bank of Japan’s meeting on Friday. As oil prices fell, nvestors demanded higher relative yields on energy bonds, making the sector a notable underperformer. High yield market sentiment was mostly firmer this week, thanks to the better-than-anticipated earnings reports.
In Europe, bank stocks rose in the week’s final trading hours in anticipation of the forthcoming results from the 2016 stress tests for 51 lenders across the European Union (EU). The European Banking Authority will publish the results after the Friday close of the U.S. market. The outcome for Italy’s third-largest bank, Monte dei Paschi di Siena, which is hampered by debt and nonperforming loans, will be of particular interest to investors because it could fail the test. Monte dei Paschi’s Board said it had received two rescue proposals. Among bonds, the UK government bond yield fell to new lows this week as expectations increased that the Bank of England will cut interest rates at its monetary policy meeting on August 4 and possibly restart quantitative easing.
In other markets Brazil announced that its June current account deficit was $2.5 billion, which was slightly lower than last June’s figure. However, the June 2016 deficit was significantly wider than consensus expectations for $1.5 billion. The minutes from last week’s meeting of the central bank of Brazil’s monetary policy committee, known as the Copom, indicated that inflation is not moderating as quickly as the central bank would like and that it is unlikely to cut interest rates in the near future. However, the latest data on fund flows from Bank of America Merrill Lynch showed that investors continued to pour money into emerging markets. Over the most recent four weeks, $14 billion went into emerging markets bond funds, the largest four-week inflow on record, as investors searched for yield in an environment of ultra-low or negative rates on high-quality government bonds from developed markets. Equity funds specializing in emerging markets enjoyed a fourth consecutive week of inflows.