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The stock market closed lower on Friday, ending a three-week winning streak for major indices and adding some warning signs for investors.
X
The Nasdaq fell 0.8% and extended their losing streak to four days. The composite closed slightly below its 21-day exponential moving average. This removes a level of short term support.
Indices closed near session lows. The S&P 500 was also down 0.8% and the Dow Jones Industrial Average was down 0.9%. The Russell 2000 slipped 1.3%.
Over the week, the Nasdaq lost nearly 2%, the S&P 500 1% and the Dow 0.5%. Volume fell on the Nasdaq and NYSE on Friday as well, according to early figures.
Retail inventories fell, despite a better than expected June retail sales report. The Commerce Department said sales rose 0.6%, much better than economists’ forecast for a 0.4% drop from the previous month. More stores are returning to full opening hours as Covid-19 restrictions are relaxed and many chains have raised their prices.
Snapshot of the US Stock Market Today |
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|---|---|---|---|---|
| Index | symbol | Price | Loss of profit | % Switch |
| Dow jones | (0DJIA) | 34686.93 | -300.09 | -0.86 |
| S&P 500 | (0S & P5) | 4327.09 | -32.94 | -0.76 |
| Nasdaq | (0NDQC) | 14427.24 | -115.89 | -0.80 |
| Russel 2000 | (IWM) | 214.94 | -2.69 | -1.24 |
| MICI 50 | (FFTY) | 42.05 | -0.31 | -0.73 |
Last updated: 4:04 PM ET 7/16/2021 |
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Still, the SPDR Retail S&P ETF (XRT) fell 1.5% and traded below the 50-day moving average for a second day in a row.
Defensive sectors dominate the stock market
Friday’s trading showed a defensive bias, with utilities, real estate, health care and consumer staples posting gains of 0.2% to 1%.
The worst performing S&P sector ETF was the Energy Select Sector SPDR (XLE) ETF, down 2.8%. The ETF is now 15% below its June 10 high after falling around 8% this week.
The price of US crude was almost stable at $ 71.56 a barrel, but suffered its worst week since March. The United Arab Emirates and Saudi Arabia are said to have reached a compromise this week that paves the way for the main oil-producing countries, OPEC +, to increase production from next month.
The Innovator IBD 50 ETF (FFTY) fell 0.7% and remained around the lowest levels of the year. Nvidia (NVDA), a stock in the IBD rankings, extended a horrific week with a drop of more than 4%. It is at its lowest since June 21 and is heading towards the 10-week moving average.
Higher risk coins such as meme stocks extended losses this week in a mass exodus. AMC Entertainment (AMC) slipped nearly 3% on Friday and fell about 24% for the week. GameStop (GME) rose 1.3% on Friday but is down around 20% this month.
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The earnings season is expected to accelerate for the stock market
Second-quarter earnings reports start to increase next week, with Cleveland cliffs (CLF), Break (SNAP) and Crocs (CROX) among the companies announcing it. Some 375 quarterly reports are on the agenda for the week.
Firms more exposed to foreign markets are expected to post better earnings gains. While companies in the S&P 500 as a whole are expected to increase revenues by 20.2% in the second quarter, those with more than half of their sales outside the United States are expected to see a 30.5% increase, according to a FactSet study. Companies with more than half of their sales in the United States are expected to increase second-quarter sales by just 17%.
This is partly due to the significant rebound in revenues for oil and gas companies. The energy sector is expected to account for the largest share of revenue and earnings growth among companies with higher international exposure, said John Butters, senior earnings analyst.
Exxon Mobil (XOM) and Chevron (CLC) are the main reasons why companies with higher international exposure are expected to outperform. Each generates over 60% of sales outside of the United States. Take away these two companies, and the profit growth rate for large international profits would fall to 63.9% from 87%. The turnover growth rate would fall to 24.5% from 30.5%.
Total energy sector sales are expected to increase 88% in the second quarter, the most of any S&P sector, according to FactSet. The technology sector has the highest proportion of overseas sales; its total sales growth is set at over 31% for the second quarter, below the S&P 500 total of 69.3%.
Juan Carlos Arancibia is IBD’s Markets Editor and oversees our market coverage. Follow him on @IBD_jarancibia
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