By Ovunc Kutlu & Gulbin Yildirim
U.S. letter, week beginning July 18

What happened last week?

The most important development last week was Wall Street shattering new records on a daily basis, after a positive outlook and investors’ confidence created bullish sentiment in the market.

The first record came in on Friday July 8, when non-farm payrolls recorded a much better record than market expectations for the month of June and marked its highest monthly jump in the last eight months. S&P 500 reached 2,131 points – a new all-time high during trading hours, while the Dow Jones climbed above the critical 18,000 points for the first time in the last two weeks.

With such positive sentiment, the stock market opened higher last Monday. S&P climbed 2,143 points for a new record, while the Dow reached 18,227 – its highest level in 13 months.

Oil prices jumped 4.5 percent Tuesday after a bullish forecast by OPEC in its monthly oil market report, which said it expects global oil demand to increase this year and the next. At the final bell, the American benchmark West Texas Intermediate traded at $46.78 a barrel, while international benchmark Brent crude was at $48.34. Meanwhile, the Dow and the S&P closed at their all-time highest levels, and the Nasdaq erased all its 2016 losses to reach its highest level of the year.

However, Wall Street closed mixed Wednesday as oil prices fell around 4 percent after the International Energy Agency announced in its monthly report that global oil supply surged in June from the previous month and the world's biggest oil exporter, Saudi Arabia, pumped crude at an all-time near-record rate last month. In addition, the U.S.' Energy Information Administration said in its own report Wednesday that the country's weekly gasoline stocks increased, but imports declined, adding to the overall supply worldwide while keeping global demand low. As a result, Wall Street ended the day with mixed results. The Dow and the S&P posted new all-time highs, but the Nasdaq lost all its gains from the two previous trading sessions and once again moved into negative territory for 2016.

Wall Street closed higher Thursday as indexes reached new record highs, after the Producer Price Index for June increased 0.5 percent, compared to the previous month, beating expectations of a 0.3 percent rise. In addition, a rise in the second quarter’s revenue at JP Morgan Chase added to the positive sentiment in the market. The Dow closed at an all-time high for the third day in a row, while the S&P reached its highest closing level ever for the fourth consecutive day.

The indexes opened higher Friday as well, but moved into negative territory during the trading session after European stock markets were negatively affected by the terrorist attacks in France. At closing, the S&P ended its week-long rally. However, the Dow closed at an all-time high for the fourth day in a row at 18,516 points after retail sales for June rose 0.6 percent, compared to the previous month, beating market expectations of 0.1 percent.

What to expect this week?

If the positive sentiment in the market continues with better than expected macroeconomic data and if American companies’ second quarter earnings come in strong, new all-time record highs in Wall Street could be on the cards this week.

On Tuesday, building permits and housing starts for the month of June will be announced. This will be followed by the U.S.’ weekly crude oil and gasoline inventories. Although the summer driving season is underway, domestic seasonal gasoline demand is lower than expected, which is set to cause an increase or less of an anticipated decline in weekly gasoline and crude stocks, according to analysts.

If an announcement is made of a rise in weekly crude and gasoline inventories, this could create daily declines and volatility in oil prices. 

Initial jobless claims and existing home sales for June will give indications as to the well-being of the economy for investors who will also closely watch U.S. companies’ second-quarter earnings.

Some of the major U.S.-based global companies that will release their second-quarter net income and revenues this week are:

Monday - Bank of America, Netflix, and Yahoo

Tuesday - Goldman Sachs, Johnson & Johnson and Microsoft

Wednesday - Ebay, Morgan Stanley, Halliburton and Intel

Thursday - AT&T, Paypal, Schlumberger, Starbucks and Unilever

Friday - Moody’s

Meanwhile, the Federal Reserve will hold its July meeting on Wednesday next week, but the benchmark interest rate is not expected to change so as not to halt the positive sentiment in the stock market, according to analysts. 

18 Jul,2016