Monday, July 31, 2017

All in a Week

Monday, July 31, 2017 - Corporate earnings, FOMC rates decision and commentary, an unavailing health care debate, a tumultuous White House staff shake-up, U.S. Q2 GDP reading and an updated IMF global growth forecast helped govern this week's market action. With over half of the S&P companies having reported earnings by Friday's close, second quarter earnings are on pace to beat consensus estimates by 6.4% and rise 9.1% year-over-year.

Largely upbeat corporate earnings were accompanied by the Fed's July meeting, in which it decided to hold rates steady, signaled its intention to begin trimming its balance sheet, and conveyed some concern about recent underwhelming inflation numbers. The fed's increasingly cautious stance towards tightening monetary policy was interpreted as dovish by investors and supportive of equities in the near-term. Meanwhile, the collapse of the health care debate in the Senate and a chaotic week in the West Wing further clouded the outlook for growth-fueling tax changes and infrastructure spending. Lastly, an improved 2.6% second-quarter GDP growth reading was counterbalanced with a tepid inflation reading and downgrade to the US's growth outlook to 2.1% by the IMF.

All these developments provided a mixed backdrop for stocks this week and helped sustain the current Goldilocks environment. The DJIA outperformed the NASDAQ, as strong earnings from companies like Boeing helped it outpace its tech-heavy counterpart, which was dragged down by a selloff in technology shares. The DJIA finished the week up 1.2%, while NASDAQ slipped 0.2% and the S&P 500 was largely flat, falling less than 0.1%.

ETF Global Fund Flow Summary - Amid a week of robust earnings and an increasingly cautious fed, U.S. equity-based ETFs experienced heavy inflows, to the tune of $4 billion. Additionally, with a weakening dollar and improving global growth outlook, international equities continued to attract attention, as investors plowed $2 billion into the sector. Leading the week in inflows was the SPDR S&P 500 ETF Trust (SPY), drawing nearly $6 billion in fresh assets, followed buy iShares Core MSCI EAFE ETF (IEFA), which captured $734 million in inflows. Other S&P and large-cap based products were popular among investors, with the iShares Core S&P 500 ETF (IVV), iShares S&P 500 Growth ETF (IVW), and iShares Russell 1000 ETF (IWB) finishing the week 4th, 5th, and 6th in inflows, with $398, $303, and $289 million respectively in creations. Lastly, as the dollar continued its descent, international fixed-income ETPs denominated in local currencies became an attractive play, as the VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC) ended the week 10th in inflows, with over $210 million in fresh assets. Conversely, as growth expectations lowered in the tech sector, the NASDAQ-100 tracking PowerShares QQQ Trust (QQQ) lead the week in outflows with nearly $2.6 billion in redemptions.

Another busy week is in store for the markets, as 130 companies from the S&P 500 are scheduled to report second quarter earnings. This, along with July's job report and the continued fallout from a White-House shake-up and healthcare setback, will likely command the attention of investors in the upcoming week.

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