On Friday, July 20, stocks lost a small amount of ground after President Trump escalated his threats of increasing tariffs on China. However, strong quarterly earnings reports from several large companies helped provide balance in the markets.[1] For the week, domestic indexes experienced little movement, as the S&P gained 0.02%, the Dow was up 0.15%, and the NASDAQ dropped 0.07%.[2] International stocks in the MSCI EAFE had slightly more change, with a 0.63% gain.[3]
What We Learned Last Week
- Corporate earnings rose in the 2nd quarter
As of July 20, 87 S&P 500 companies have released their 2nd quarter data. Of these companies, 83.9% surpassed analysts’ estimated results. In fact, the earnings season is going well enough that analysts have increased their growth projections. They now expect to see companies average 22% earnings growth over the past year, up from 20.7% growth projections on July 1.[4] - Retail sales increased
The most recent retail sales data indicated that consumers feel confident in the economy and labor market.[5] June’s strong growth, coupled with upward revisions to May’s results, support predictions for healthy Gross Domestic Product (GDP) increases in the 2nd quarter.[6] - Industrial production hit a new record
In June, U.S. manufacturing and mining increased. Overall, industrial production had an annual rate that was 6.1% higher in the 2nd quarter than the 1st quarter of 2018.[7] - Housing starts dropped
The latest housing-start report came in far below estimates. This decline occurred across all U.S. regions as homebuilders shared concerns about materials costs and labor shortages. However, housing start data often fluctuates from month-to-month, and reports show that the 1st half of 2018 is 7.4% higher than the same time period last year.[8]
What Is Ahead This Week
Corporate earnings season continues, and on Friday, we’ll receive the initial reading of 2nd quarter GDP. Last week’s retail sales and industrial production numbers contribute to very high expectations for economic growth results. Some estimates indicate that GDP could have increased as much as 5.2% in the 2nd quarter—much higher than the 2% growth between January and March.[9]
We will watch these results closely and look for additional perspectives on the economy’s underlying strength. If you’d like to know more about what may lie ahead, contact us any time.
ECONOMIC CALENDAR
Monday: Existing Home Sales
Wednesday: New Home Sales
Thursday: Durable Goods Orders, Jobless Claims
Friday: GDP, Consumer Sentiment
| DATA AS OF 7/20/2018 | 1 WEEK | SINCE 1/1/18 | 1 YEAR | 5 YEAR | 10 YEAR |
| STANDARD & POOR’S 500 | 0.02% | 4.80% | 13.28% | 10.61% | 8.31% |
| DOW | 0.15% | 1.37% | 15.95% | 10.02% | 8.10% |
| NASDAQ | -0.07% | 13.28% | 22.38% | 16.86% | 13.10% |
| INTERNATIONAL | 0.63% | -3.20% | 2.44% | 2.75% | 0.45% |
| DATA AS OF 7/20/2018 | 1 MONTH | 6 MONTHS | 1 YEAR | 5 YEAR | 10 YEAR |
| TREASURY YIELDS (CMT) | 1.86% | 2.16% | 2.41% | 2.77% | 2.89% |
Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
Valuable Credits Available for Certain Small Businesses*
The IRS is reminding small business owners who provide health insurance coverage to employees about the Small Business Health Care Tax Credit.[10]
The agency provides tax relief for some small businesses who want to claim the Small Business Health Care Tax Credit but have faced difficulty finding coverage in the Small Business Health Options Marketplace. Notice 2018-27[11] provides small businesses with guidance in calculating the tax credit.
Small businesses qualify for the credit by providing their employees with qualified health plans from the Small Business Health Options Program[12] (SHOP). The credit may only be used for two consecutive tax years.
The credit is available to businesses that first claimed the credit offered through the marketplace but were unable to find SHOP Marketplace coverage in their area.
The IRS states: “Under the relief, the employer can claim the credit for health insurance coverage provided outside of a SHOP Marketplace for the remainder of the credit period if that coverage would have qualified under the rules that applied before January 1, 2014.”
Other details may apply, and you can find more information on the IRS website.
* This information is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax advisor.
Tip adapted from the IRS.gov[13]
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Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
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Consult your financial professional before making any investment decision.
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[1] https://www.reuters.com/article/us-usa-stocks/wall-street-slips-as-trade-worries-dampen-upbeat-earnings-idUSKBN1KA1JK?il=0
[2] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
[3] https://www.msci.com/end-of-day-data-search
[4] https://www.reuters.com/article/us-usa-stocks/wall-street-slips-as-trade-worries-dampen-upbeat-earnings-idUSKBN1KA1JK?il=0
[5] http://wsj-us.econoday.com/byshoweventfull.asp?fid=495386&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
[6] https://www.reuters.com/article/us-usa-economy/strong-u-s-retail-sales-brighten-economic-outlook-idUSKBN1K61KV
[7] https://www.ftportfolios.com/Commentary/EconomicResearch/2018/7/17/industrial-production-rose-0.6percent-in-june
[8] https://www.ftportfolios.com/Commentary/EconomicResearch/2018/7/18/housing-starts-declined-12.3percent-in-june
[9] https://www.cnbc.com/2018/07/16/industrial-production-june.html
[10] https://www.irs.gov/affordable-care-act/employers/small-business-health-care-tax-credit-and-the-shop-marketplace
[11] https://www.irs.gov/pub/irs-drop/n-18-27.pdf
[12] https://www.healthcare.gov/small-businesses/provide-shop-coverage/shop-marketplace-overview/
[13] https://www.irs.gov/newsroom/irs-issues-guidance-for-small-businesses-about-valuable-credit
