July 4th Recap and the Week Ahead

Late last week we highlighted that the DJIA has averaged a gain of 74 bps during the shortened July 4th work week since 1901.  This year the Dow saw gains once again -- only this time it doubled the average amount and went up 1.51%.

Friday's Non-Farm Payrolls number was higher than expected, leaving equity markets higher on the day and bond prices lower. The price chart of the S&P 500 shows that the index is ready to test its all-time highs yet again.  The slight downtrend that formed over the past couple of weeks was broken by Friday’s closing price, and the triple bottom formation remains intact.

Unfortunately for bondholders (and the financial sector and the housing market), the yield on the 10-Year broke the downtrend it had formed over the past couple of weeks as well.

The main item on next week’s agenda is the start of second quarter earnings season. While the majority of reports really don’t kick in until the week after next, two big Dow stocks are scheduled to report in the next five trading days. Alcoa (AA) reports after the close on Monday, and General Electric (GE) reports before the open on Friday.  From our Second Quarter Earnings Season Calendar, we see that neither company has a stellar EPS “beat” rate , so a stronger-than-expected report from either should help their stock prices.

Not so long ago, the worry on Wall Street was the end of the 18 quarter streak of double digit earnings growth.  We’ve now had two consecutive quarters of single digit earnings growth and expectations for the second quarter currently stand at 5.3%.  Earnings growth expectations for the third quarter are even lower at 2.3%, but they pick back up to 13.1% by the fourth quarter of 2007.  It is surprising, however, that there seems to be little talk in the financial world about the decline in earnings growth.  We wonder if these numbers might be mentioned more often if the markets were heading in a more southerly direction.

There are four major economic indicators due next week -- all of which are scheduled for release next Friday.  Their historical charts and current consensus estimates are below:

While next week will remain slow as the dog days of summer progress, markets will start to pick up steam as traders gear up for earnings season.  One last piece of information we’ll share is the current status of the Bespoke Market Poll.  In our second week of polling Bespoke readers, the percentage who marked “bullish” as their current view on the S&P 500 rose from 53% to 59%.  If you would like, please take time to vote in the left sidebar of this page

Remember to check Bespoke’s Second Quarter Earnings Calendar for up-to-date information on over 2,000 companies due to report over the next couple of months. Please visit www.BespokePremium.com to support our subscription services.  Have a great weekend!