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MPCA Weekly Market Update (July 20, 2015)

| July 20, 2015

The S&P 500 enjoyed its best week since March, rising 2.4% on the back of strong domestic corporate earnings and headlines that Greece struck a short term “Band-Aid deal” with its creditors.  Earnings season ramped up as several large companies announced significant improvement in their operations.  However, we would be remiss if we did not point out a discordant note as several companies cut full-year guidance.

Citigroup set the tone early, rallying nearly 8% as they announced earnings that surprised analysts.  The company’s profitability measures were higher year over year as the bank continues to see improvement from their poorly performing assets.  Wednesday, Netflix shares rocketed over 18% as subscriber growth of 3.3 million topped estimates, bringing total worldwide subscribers to 65.6 million as of the end of June, the company’s second quarter.

Negatively, Wells Fargo reported another drop in quarterly profit on Tuesday, underscoring the challenge facing some U.S. banks in boosting their earnings as revenue growth remains difficult. Sherwin-Williams announced earnings slightly lower than expectations and cut forward guidance for the year, leading to a 7% drop on Thursday.  Garmin had similar disappointing news, and also fell 7% on the same day.

Google ended things on a grand note, taking up where Netflix left off as shares shot up over 16% on Friday.  The search giant’s new CFO, Ruth Porat, unveiled a 5-point plan for more disciplined spending with a focus on growing core earnings.  Major earnings announcement continue this week, as mega-cap companies (defined as $100+ billion market capitalization) such as Apple, Microsoft, Amazon, Verizon AT&T, Coca-Cola, Visa and many others are all expected to report.

A quick note about another bearer of good news last week, as China surprised economists with a 7% annualized GDP growth rate in the second quarter, versus a median forecast for 6.8% growth.  However, questions persist about the reliability of the country’s official data.  Value-added industrial production decreased, and growth slowed in fixed asset investment and retail sales.  We would suggest that investors digest China’s official economic reports with a generous helping of the proverbial grain of salt.