A variety of factors weighed on stocks as benchmarks ended the
month with losses. International tensions dominated proceedings, as
did comments from the Fed. An observation from Fed Chair Janet
Yellen that Internet and biotech stocks may be overvalued sparked
off fears among investors.
Meanwhile, the FOMC's outlook on the economy was mixed. The
committee said that while the economy continues to improve, the
labor market and housing sector still showed signs of weakness.
Some positive economic reports and earnings numbers provided
optimism, but failed to outweigh the negatives.
For the month, benchmarks ended in the red zone. The S&P 500
and the Dow suffered their first monthly decline since January,
declining 1.5% and 1.6%, respectively. The Nasdaq dropped 0.9%.
Escalating geopolitical tensions including the ones in Gaza and
Ukraine unnerved investors. Benchmarks suffered their biggest
losses in months on reports that a Malaysian Airlines passenger jet
was shot down near Ukraine-Russian border. Concerns about the
European banking system also dragged domestic benchmarks lower.
Benchmarks were also negatively impacted after a Fed monetary
policy report sparked concerns about "substantially stretched
valuations" in Internet and bio-tech stocks. Additionally, Federal
Reserve Chairwoman Janet Yellen's comment that federal funds rate
might be raised sooner if the labor market keeps surprising the
central bank dented investor sentiment.
Dismal corporate results by Caterpillar Inc. (
), General Motors Co. (
) and DR Horton Inc. (
) also weighed on benchmarks. Analysts took a dim view of The
Boeing Company's (
) results as they were concerned about the company's cash flow and
the rise in cost of its military tanker program.
Several companies also posted encouraging results. Facebook,
), Ford Motor Co. (
), Apple Inc. (
), Citigroup Inc. (
) and JPMorgan Chase & Co. (
) reported upbeat quarterly performances. Earnings results from The
Goldman Sachs Group, Inc. (
), Intel Corp. (
), Morgan Stanley (
) and UnitedHealth Group Inc. (
) were also encouraging.
The U.S. economy rebounded in the second quarter with GDP growth
coming in stronger than expected. According to the "advance"
estimate by the Bureau of Economic Analysis, the second quarter
output of goods and services produced by labor and property located
in the United States increased at an annual rate of 4.0%, more than
the consensus estimate of an increase by 3.2%.
Second quarter GDP gained momentum, fuelled by improved consumer
spending. Real personal consumption expenditure accelerated in
spring by 2.5% following a 1.2% increase in the first quarter.
In addition to this, growth was boosted by a pickup in construction
spending, increased business spending on equipment, a bigger
buildup in inventories and slightly higher government spending.
This rise in second quarter GDP was in sharp contrast to first
quarter's decline in real GDP by 2.1%. First quarter GDP was
revised from an earlier estimate of a decline of 2.9%. The US
economy had contracted in the first quarter for the first time in
three years. Harsh winter weather was cited for hampering business
operations and slowing down construction.
Other Economic Data
Overall, economic data came in mixed. Manufacturing activity picked
up in the U.S. The Institute for Supply management reported June
PMI of 55.3%, indicating expansion in factory output for the 13th
Federal Reserve's Beige Book stated that economic activity in all
twelve Federal Reserve Districts expanded since the previous
report. Additionally, the U.S. Producer Price Index (PPI) for
finished goods and industrial production increased in June.
Separately, the NAHB/Wells Fargo Housing Market index touched its
highest level in July since January. Orders for durable goods in
June also increased more than estimated. Existing home sales data
hit the highest level in June since Oct 2013.
However, pending home sales numbers for June declined.
Additionally, new home sales registered its biggest drop in almost
a year. Home construction data was also weak. Housing starts fell
to a nine-month low in June. Separately, U.S wholesale inventories
Sanctions on Russia
The U.S. has extended its economic sanctions on Russia, following
the Ukraine crisis. Additional sanctions will hit Russia's energy,
defense and finance sectors. New sanctions will also target
Russia's three state controlled banks and its shipping firms.
The European Union also announced a new round of sanctions against
Russia. New sanctions restrict Russia's largest banks from raising
finances in European Union and place a trade bar on arms. They will
also restrict export of military sensitive goods and equipment used
in unconventional oil production to Russia. Developments on the
Russian front continue to weigh on investors.
Fed Policy and Outlook
The Federal Open Market Committee (FOMC) in its two-day policy
meeting gave no hints about the timing of an increase in the
federal funds rate. The Federal Reserve said the rate hike may take
"considerable time" after the end of its bond buying program.
Meanwhile, the FOMC stuck to its plan of steadily wrapping up the
quantitative easing program by announcing another $10 billion cut
to the bond-buying program. The monthly purchases of Treasury and
mortgage-related assets now stand at $25 billion.
The central bank also said that "the likelihood of inflation
running persistently below 2% has diminished somewhat" and
inflation "has moved somewhat closer to the Fed's longer-run
FOMC indicated that the economy has shown significant improvement
in the second quarter as most of the economic indicators such as
GDP, unemployment rate and inflation rate, were on track. However,
it also said the labor market is facing problems of
underutilization and the pace of recovery of the housing sector is
3 Star Performers for July
I ran a screen on
for companies with the following parameters:
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Research Wizard today
- Percentage price change over the last 4 weeks greater than or
equal to 20%
- Forward price-to-earnings Ratio (P/E) for the current
financial year (F1) less than or equal to 20. This picks out
stocks that are good value choices
- Expected earnings growth for the current financial year
greater than or equal to 20%
- Zacks Rank less than or equal to 2: This ascertains stocks
that have shown above-average returns over the last 26
(See the performance of Zacks' portfolios and strategies here:
About Zacks Performance
Here are the 3 stocks that made it through this screen:
CTPartners Executive Search Inc.
) is an executive search company that offers its services globally
and focuses on recruitment of high level executives, including
board members. The company has 15 offices worldwide. CTPartners
purchased Sydney based executive search company Johnson Executive
Search in Mar 2014.
Percentage price gain over the last 4 weeks = 30.8%
CTPartners has significant expected earnings growth for FY2014
and holds a Zacks Rank #1 (Strong Buy). The stock's forward
price-to-earnings ratio (P/E) for the current financial year (F1)
Gentiva Health Services Inc.
) offers skilled nursing and therapy services, paraprofessional
nursing services and homemaker services primarily to adult and
elderly patients through licensed and Medicare-certified agencies.
It also provides services through specialty programs comprising
Gentiva Orthopedics, Gentiva Safe Strides, Gentiva Cardiopulmonary,
Gentiva Neurorehabilitation and Gentiva Senior Health. Furthermore,
it offers hospice services and consulting services.
Percentage price change over the last 4 weeks = 20.1%
Expected earnings growth for FY2014 = 120.2%
Currently, the company holds a Zacks Rank #2 (Buy) and has a P/E
(F1) of 19.62.
RF Micro Devices Inc.
) designs and manufactures radio frequency solutions. The company
was a wide range of products which includes single-function
components, integrated circuits and multi-chip models. RF Micro
Devices operates through business divisions including a cellular
products group and a multi-markets products group.
Percentage price change over the last 4 weeks = 20.6%
Expected earnings growth for FY2014 = 195.8%
Apart from a Zacks Rank #1 (Strong Buy), RF Micro Devices has a
P/E (F1) of 12.7.
International Factors Hold the Key
The Dow and S&P 500 have closed the month with losses for
the first time in seven months. The Nasdaq has also ended July in
the red zone. This is cause for concern, since several key earnings
reports have been on the positive side. Despite positive
indications from important economic indicators some reports have
It seems that geopolitical concerns and international pressures
have taken centre stage. The situation in Ukraine and Gaza and
fears about the European economy continues to weigh on investors.
The fallout of the Argentinean default has added to these concerns.
Next month will indicate whether markets can ride out these
concerns. In case these fears abate, the second half of the year
could still be a good one for the markets.
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JPMORGAN CHASE (JPM): Free Stock Analysis
FORD MOTOR CO (F): Free Stock Analysis Report
BOEING CO (BA): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
INTEL CORP (INTC): Free Stock Analysis Report
APPLE INC (AAPL): Free Stock Analysis Report
CATERPILLAR INC (CAT): Free Stock Analysis
UNITEDHEALTH GP (UNH): Free Stock Analysis
RF MICRO DEVICE (RFMD): Free Stock Analysis
GENTIVA HEALTH (GTIV): Free Stock Analysis
CITIGROUP INC (C): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
GENERAL MOTORS (GM): Free Stock Analysis Report
D R HORTON INC (DHI): Free Stock Analysis
FACEBOOK INC-A (FB): Free Stock Analysis Report
CTPARTNERS EXEC (CTP): Free Stock Analysis
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