From a markets point of view, it looked reasonably uneventful week as the S&P 500 managed a small gain, however, the tech sector, which has born much fruit for investors had a more volatile week. Several of the high-profile technology stocks suffered major corrections. We mentioned Facebook earlier in the week, others of note were Twitter falling 20% after failing to meet expectations and Intel almost 10% after announcing delays to its next-generation chips. The sector reacted on Friday as the NASDAQ index fell 1.5%. Just over 50% of the S&P 500 companies have reported earnings and according to Factset, just under 80% have beaten earnings expectations. Despite the strong earnings season, which continues overall to meet and beat lofty expectations, forward guidance may not be painting quite such a rosy picture as 29 companies have reported negative guidance and only 14 positive guidance, again according to Factset.
The other main news of the week was the much anticipated second quarter US GDP, where there had been some expectation of a number that could be a growth of over 5%. In the end, the growth rate came in at 4.1%, strong, but pretty much in line with expectations. The Vix index or worlds fear gauge as some like to think, had fallen earlier in the week, probably anticipating the strong growth figure along with a consistent earnings season, ended higher on the week. The weekly AAII retail investor survey reported that bullish investor sentiment remains below the long-term average.
This week central bankers will be back in focus as rate setting members of the Bank of Japan, the Federal Reserve and the Bank of England all meet. It is possible all three announce some form of monetary policy tightening. The Federal Reserve is all but nailed on to raise interest rates, particularly as they will want to reaffirm their independence post-Trumps intervention a week or so ago. The Bank of England is also now expected to raise interest rates by a quarter of one per cent. There has been some speculation the Bank of Japan could alter its policy in a slightly more hawkish direction as ten-year JGB yields have been rising on the anticipation the Bank may raise the cap on ten-year yields. The Bank of Japan has possibly dampened this expectation in the past few days, as they have been into the market buying bonds pushing yields back down again.
It will be an interesting week as the focus moves from stock-specific earnings, with the possible exception of Apple, to macro and monetary policy. Once again ensuring active managers remain close to their smartphones despite the disapproval of those they are on holiday with.