EmailFriday's technical rally is long over. S&P futures suggest a slightly lower open.
The market surge Friday was sparked, but not caused by, the good earnings reports from JP Morgan and Wells Fargo. Even the good underlying trends for the banking sector apparent in the reports have little meaning across other sectors.
The market rally was a strong bounce after six straight daily declines that took the S&P 500 index down from 1374 on July 3 to 1334 on Thursday. It was fueled by short-covering on light volume and merely brought the index up to 1357, near the middle of the 1300 to 1425 range of the past few months.
This week brings an onslaught of earnings. Over 20% of the S&P 500 companies report this week. Our earnings calendar has 240 companies in total. There are important reports from finance (MS, BAC, GS), technology (MSFT, INTC, GOOG, EBAY), industrial (GE, JCI, IR), and consumer companies (KO, JNJ, AXP) this week.
Despite the heavy reporting week ahead, there is only one noteworthy report today. Citigroup reported earnings of $0.95 per share, $0.05 ahead of expectations. The stock is up 2.4% pre-market.
June retail sales were extremely disappointing. Total sales fell 0.5% and the drop was 0.4% excluding autos. It was the third straight month of decline for each. A small gain was expected. The downtrend in retail sales does not auger well for the overall economy.
A reported increase in Empire Manufacturing index to 7.4 for July from 2.3 in June helped offset some of the market reaction to the poor retail sales number. The manufacturing indices tend to get too much play because they are early indications for the month (it is for July while the retail sales data are for June).
In our view, the Empire number is of minor economic significance compared to the reality of three straight months of a decline in retail sales.
The focus this week will be on the major earnings reports. The financial sector stocks may get boosts from an improvement in underlying trends for the industry or an improvement in balance sheets. Industrial companies may post some decent earnings gains, but global economic concerns and a stronger dollar could weigh on future expectations. Tech stocks could post mixed numbers, with Intel and Microsoft expected to post profit declines. Consumer stocks are expected to post modest earnings gains and to express uncertain outlooks.
Overall, it is not lining up to be an impressive earnings season, despite the market rally on Friday.
Founder and Chairman, Briefing.com
