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Newsletter August 2016

Equity overview - domestic markets

Major U.S. stock indices reached new highs in July as earnings reported for companies in a host of industries were better than expected, leading to upward pricing pressures.

After a 5% decline in the two days after Britain voted to leave the European Union, the S&P 500 Index staged a powerful rally beginning June 28th, sending the index to new highs. Since the run, equity markets have been idle, as though it was taking a break. Analysts view such a “break” optimistically, since the health and sentiment of the market might very well be positive. Also of note is the lack of volume equity markets have seen this summer, with volume off about 15% compared to July 2015. After a 5% decline in the two days after Britain voted to leave the European Union.

The Institute for Supply Management export data improved this past month, which has been a positive indicator for U.S. equity markets leading to reacceleration of earnings growth rates.

Small-cap stocks have outperformed larger-cap stocks since the beginning of the year, as earnings have exceeded expectations and low interest rates have made debt payments affordable. As of the end of July, 64% of the companies that have reported earnings had beaten estimates, a positive note heading into the second half of the year. 

Sources: S&P, Bloomberg