Market Watch: Dog days of summer in the market

Markets have been relatively stable lately despite the flood of earnings being reported. So far, the reports have been relatively positive versus expectations. There has been some profit taking in the tech sector, but it has been contained in comparison to the rotation we saw a few weeks back. This is not unexpected given the sharp run-up in share prices this spring and summer. In addition to earnings, the Fed announced that it would leave interest rates unchanged. There also was confirmation from OPEC that an agreement to keep oil production contained to stabilize price was agreed upon.

Earnings growth hasn’t been limited to the technology sector. Several blue-chip companies have reported very impressive reports, plus their sales and earnings guidance going forward has been optimistic. Usually investors focus both on earnings and future guidance. Sometimes you’ll see a good earnings report coupled with poor forward guidance. When this happens the stock’s price will go down. Investors often want to know if the company can continue to deliver good profits going forward. Remember the stock market is a forward-looking mechanism. The saying isn’t, “what have you done for me today?” It’s what will you do for me six months from now?

Notwithstanding the strong earnings results, there has been a tendency to sell the news, as many stocks were bid higher in advance of their actual reports. The real focus for investors should be. Was Q2 stronger than Q1 in term growth and GDP? Yes. Real GDP increased at a seasonally adjusted annual rate of 2.6 percent, helped by a pickup in consumer spending, nonresidential fixed investment, exports, and government spending. The second quarter marked the second-highest rate of growth over the last eight quarters. The average growth rate for the first half of the year, then, was a subpar 1.9 percent. That should keep the Fed in a watchful mode, and perhaps fuel a sense of urgency in Congress to get some type of tax deal done before the end of the year.

Another shot in the arm for the market has been upside surprises. That is to say companies that not only met expectations, but knocked it out of the park. Sorry, it’s the dog days of summer and a baseball reference was inevitable. We’ve had a good amount of companies across multiple sectors surprise to the upside further giving legs to this market. Since we are heading into August expect the market to cool off some. August has been the worst month for the SPX over the last 30 years, averaging a -0.86 percent decline. Of course, this is just an average, and there have been some strong gains in August also.

It’s summer and the sun is shining. Stay cool and go enjoy your family.

D. Scott Peterson, CEO and head investment manager for Peterson Wealth Management, may be reached at 775-673-1100/775-423-8007 or at www.PetersonWM.com.