US Stocks Supported by Earnings, Calls for More Central Bank Stimulus

Two out of the three major U.S. stock indexes closed at fresh record highs last week, helped by surprisingly good earnings reports and better-than-expected news about the economy. Furthermore, we have the European Central Bank (ECB) strongly hinting at fresh stimulus, the Reserve Bank of Australia saying interest rates would stay low for a long time and the Federal Reserve getting ready to cut rates by 25-basis points on Wednesday. Oh, and the U.S. and China are getting ready to resume trade talks on Monday. Yeah, so I would say things were pretty rosy last week.

In the cash market, the benchmark S&P 500 Index settled at 3026.00, up 1.7%. The blue chip Dow Jones Industrial Average finished at 27192.00, up 0.1% and the technology-based NASDAQ Composite closed at 8330.00, up 2.3%.

Earnings Drive the Action

Last week, shares of Google parent company Alphabet rose after the company reported an earnings and revenue beat for the second quarter of 2019. The companys board of directors also approved a repurchase of up to an additional $25 billion of its Class C capital stock.

Intel shares rose more than 7% after the chipmaker reported better-than-expected earnings and revenue and gave an upbeat forecast. Starbucks climbed nearly 6% after the coffee chain beat analysts expectations for its third-quarter earnings and raised its full-year forecast.

Twitter posted earnings that beat analyst estimates on the top and bottom lines, helping to boost share prices by 8.9%. The rally added more than $2.6 billion to Twitters market cap, bringing it to $31.9 billion. Revenue was up 18% year over year, the company said, due to domestic growth.

Coca-Cola shares jumped more than 6% after the company posted earnings and revenue that topped analyst expectations. United Technologies reported better-than-expected quarterly results.

On the downside, Caterpillar cut guidance, citing tariffs and lower demand in China. Ford shares fell after the company reported second-quarter earnings that were short of expectations. Amazon reported mixed second-quarter results, beating sales forecasts but missing on earnings estimates.

US-China to Resume In-Person Trade Talks

American trade negotiators will head to China on Monday for face-to-face talks as the two economic powerhouses try to strike a trade deal. While the talks represent a critical next step after a truce reached between the countries leaders in June, a deal is not viewed as near. Longer-term, U.S. officials have suggested they could roll back the tariffs in exchange for Beijing making a legally binding deal to purchase U.S. agricultural products.

More Central Bank Stimulus is Coming

Last week, the ECB held interest rates steady, but outgoing President Mario Draghi all but pledged to ease monetary policy further as the growth outlook deteriorates. In Australia, Reserve Bank governor Philip Lowe said the central bank could keep cutting the cash rate in the coming months to support the ailing economy. Both moves are expected to be supportive for equity prices.

On Monday, the Bank of Japan is expected to leave its benchmark rate unchanged, but hint at further stimulus. On Wednesday, the Fed is widely expected to cut its benchmark rate 25-basis points and signal further cuts in the near future.

Dow Playing Catch-Up

Last week, the S&P 500 Index and the NASDAQ Composite Index outperformed the Dow Jones Industrial Average by a wide margin. This doesn‘t mean the Dow was week. It had to do with the Dow Components. It’s underweighted in technology so the strong performances in Alphabet, Starbucks, Twitter and Intel helped generate more upside action in the benchmark and technology-based indexes.