A three-week stock market winning streak has propelled the Dow Jones Industrial Average (chart) and the S&P 500 (chart) to close at record highs. In one of the most dramatic turn of events from the shocking Brexit vote to today, these key indices were breaking records all week long. The Nasdaq (see chart below) and the small-cap Russell 2000 (see chart below) also posted a strong week of gains.
I stand corrected! In my previous blog I referred to the fact that the S&P 500 (chart) had been stuck in a trading range and that upcoming earnings reporting season should act as the catalyst to break stocks out of this range. Furthermore, my view was that corporate earnings most likely would underperform hence a breakdown out of this trading would be more probable. Well here we are today at record highs and we haven’t even gotten into the bulk of earnings reporting season. The largest U.S. bank J.P. Morgan (NYSE: JPM) did however report their results this past week posting a profit of $6.2B. J.P. Morgan’s results came in stronger than expected which also helped fuel this week’s rally, especially in the banking sector.
As much as we were oversold leading up to and just after the Brexit vote, the markets now find themselves approaching overbought territory. Now the question becomes what to do next? As mentioned above, we are full steam ahead into the bulk of earnings reporting season which can come with plenty of surprises. From a technical standpoint I find it hard to commit any new capital into a market at record highs and do so with most of corporate America yet to report their results. I will be paying attention to the top-line growth of companies to get more of an accurate read how their business is fairing compared to their bottom line which can be adjusted in many ways that may not tell the whole story. My concern now is how can record highs continue if top-line growth is not there in a meaningful way? Let’s look to next week to see if the record setting trend continues, or a pause and reversal comes forward.
Good luck to all 🙂