In contrast to the prior week, the waning days of the second quarter earnings reporting season were a quiet affair. Last week’s winners were health care, taking first at +2.1%, and consumer staples, taking second place at +1.7%. Utilities and technology tied for third, with gains of 1.2%. Energy stocks posted the largest decline for the week, losing 1.8%, seemingly more on sentiment than fundamentals, as crude oil fell only 0.3% last week. Finance, industrial and materials shares were fractionally lower for the week. The capitalization bias was again in full view with the Mid-Cap S&P 400 Index and Small-Cap S&P 600 Index adding 1.27% and 1.18%, respectively, while the Large Cap S&P 500® Index added only 0.78%. International markets, both developed and emerging, fell last week in a move that was not driven by a change in the value of the U.S. dollar or movement in U.S. interest rates, as both of which were unchanged for the week. The MSCI EAFE® Index of developed markets declined 1.47%, and the MSCI Emerging Market Index lost 1.74%. Prices for U.S. grain continued to rebound, with wheat adding over 4%, while corn and soybean prices added 2%. Industrial metal prices were again down fractionally last week.
In his analysis of the Federal Reserve statement last Wednesday, Comerica’s Chief Economist, Dr. Robert Dye, pointed out the language indicating that the Governors see continued strength in the economy and remain on track to raise rates at their September meeting. His analysis of the slightly weaker-than-expected July jobs report on Friday points out the strong upward revisions to the May and June results, along with the continuing rise in hourly earnings. Thanks to solid fundamentals, we remain positive on U.S. equities for the balance of the year. While it has been anything but reassuring to watch, the upheaval that accompanied this reporting cycle has served to alter the nature of the market leadership. Over the last three months, the best performing sectors were healthcare and consumer staples, and both are typically viewed as defensive sectors. The prior leadership has, by no means, faded from view. Quite the contrary, as technology and consumer discretion tied for third place over the last 90 days. The point to this is that broad market leadership is generally the sign of a healthier, more robust market.
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