Dow Sets Record July in 20 Years
“Looking out over the next month or so, I wouldn’t bet against the market, but we’ve had such a run that it wouldn’t be unreasonable to see a correction,” said James King, chief investment officer at National Penn Investors Trust.
The Dow and the S&P 500 closed Friday at the highest levels since November. The reason being, there have been reports circulating that the pace of the recession is slowing. The NASDAQ as well closed near its 10 month high.
The GDP report and several quarterly earnings reports bolstered investors morale. Several forecasts have actually been exceeded by actual quarterly reports, making investors more confident in their trades.
Dow gained 8.6% in July. This beats every July for the past 20 years, since 1989, which was 9%. This is also the best month since last October, which was 10.6%.
The S&P 500 gained 7.4%, placing it as the best July in 21 years as well, since 1988, which was 8.8%. However, it is only a few months ago that it was higher, April, which was at 9.4%.
The NASDAQ was up by 7.8%. That is the best July since 1997, which was 10.5%. It was trumped last April, when it gained 12.4%.
Around 74% of companies have beat forecasts, versus the long-term average of 61% and the all-time record of 73%, reached in the first quarter of 2004. Companies are also beating forecasts by the greatest amount since Thomson began tracking results 15 years ago, beating by an average of 13% versus the previous record of 7.1%. That record was also made in the first quarter of 2004.
The GDP reports were forecasted to be a dismal 1.5% shrinkage, however the actual report was a 1% shrinkage instead.
“There are some positive signs in the report, but there’s not a clear sign that we are moving back to growth just yet,” said James King, chief investment officer at national Penn Investors Trust. “I think that’s why you’re seeing a mild reaction in the markets.”
Could That Correction Come Sooner or Later?
Next week brings quarterly results from another 18% of the S&P 500 companies, including Dow components Cisco Systems, Kraft Foods and Procter & Gamble. Economic reports include readings on personal income and spending, retail sales and the labor market.
August is typically a low-volume month. Coming off of a record July, could mean an immediate correction.
“The story of July is the large number of companies that beat forecasts and all the portfolio managers that decided to put money to work,” said Fred Dickson, chief market strategist at D.A. Davidson & Co.
That cheer hasn’t spilled over to third-quarter forecasts, with few companies or analysts lifting estimates. Currently, third-quarter profits are expected to dip 21.5% versus a year ago, according to Thomson. On July 1, analysts thought 3Q results would dip 20.9% year-over-year.