Strong second-quarter earnings lifts Dow and S&P, while NASDAQ drops on tech fears – As second-quarter earnings season has begun, most companies are reporting better-than-expected earnings. Social media companies were an exception. The NASDAQ hit an all-time high on Wednesday, only to fall sharply after Facebook reported earnings below expectations. Facebook stocks dropped 20% on Thursday. Friday, Twitter reported a loss in users with disappointing earnings and a more cautious outlook on growth. Twitter stocks dropped over 20%. These dragged the tech-heavy NASDAQ down and it closed lower for the week. The Dow Jones Industrial Average closed the week at 25,451.06, up from 25,058.12 last week. It is up 3% year-to-date. The S&P 500 closed the week at 2,818.82, up from 2,801.31 last week. It’s up 5.4% year-to-date. The NASDAQ closed the week at 7,737.42, down from 7,820.20 last week. It’s up 12.1% year-to-date.
Treasury Bond Yields higher this week – The 10-year Treasury bond closed the week yielding 2.96%, up from 2.89% last week. The 30-year Treasury bond yield ended the week at 3.09%, up from 3.03% last week. We watch bond rates because mortgage rates follow bond rates.
Mortgage rates unchanged for the week – The July 26, 2018 Freddie Mac Primary Mortgage Survey reported that the 30-year fixed mortgage rate average was 4.54%, almost unchanged from 4.52% last week. The 15-year fixed was 4.02%, almost unchanged from 4.00% last week. The 5-year ARM was 3.87%, unchanged from 3.87% last week. Rates rose at the end of the week. Expect next week’s rates to be slightly higher.
U.S. Gross Domestic grew 4.1% in the second quarter – Highest quarterly reading in four years – The Commerce Department reported that the Gross Domestic Product rose 4.1% in the second quarter of 2018. That reading was in line with what analysts expected. It was the highest quarterly growth since the third quarter of 2014 when GDP grew 4.9%, and marked a nice rebound from the first three months of this year when the economy grew at a slight 2.2%. Consumer spending grew at an annual rate of 4% in the second quarter, up from a sharp pullback in the first quarter. Business investment grew 5.4%, down from 8% in the first quarter. Exports surged 9.3% in the quarter, as the trade gap narrowed. Experts point to a surge in soybeans and other items that were purchased prior to tariffs going into effect. They warn that there is no way demand for these items increased so sharply, and they were purchased to be held in inventory for later consumption. They feel this will adversely effect next quarter’s results, as advance purchases were made this quarter instead of next quarter. They still feel it was a positive quarter and the economy is very strong. Inflation also moderated as The Commerce Department’s Personal Expenditure Consumption Price Index grew at an annual rate of just 1.8% in the second quarter, down from 2.2% in the first quarter.
Fewer California existing homes sold in June – Prices continue to increase – The California Association of Realtors reported that existing home sales totaled 410,800 in June on a seasonally adjusted annualized rate. While that was .4% higher than the number of existing home sales in May, it was down 7.3%, year-over-year from June 2017, when the annualized rate was 443.120. That was the largest year over decline in sales in almost four years. The statewide median price was $602,750 in June, up 8.5% from last June’s median price. The median price paid for a condominium or townhome was 7% higher than last June. Statewide Inventory levels rose for the third consecutive month, up 8.1% in June. That was the largest monthly increase since January 2015, when listings increased 11%. The unsold inventory index had a 3 month supply of homes for sale, up from 2.7 months in June 2017. A normal market has a 6 month supply.
New home sales soften in June – The Commerce Department reported that sales of new single-family homes dropped 5.3% in June on a month-over-month basis. New home sales in June totaled 631,000 on a seasonally adjusted annualized rate. That was the lowest rate of new home sales since October 2017.