Market Breadth Continues To Improve

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

Markets moved higher last week in spite of the Fed raising rates after June's pause. Overall, 51% of S&P 500 companies have reported 2nd quarter earnings and things are looking better than at the beginning of earnings season.  So far, 80% have reported earnings above estimates (above the 5-year average), while only 64% have reported revenues above estimates (below the 5-year average).  The Fed raised interest rates by 25 basis points last week, in a move that was highly anticipated by the market.  The market is expecting that to be the last rate hike in the current cycle as futures point to an 80% probability of no rate hike in September.  

Consumer Spending and Consumer Sentiment were improved last week as spending in June was +0.5% after a disappointing May and sentiment hit the highest mark in 18 months.  The Fed’s favorite inflation barometer, PCE Price Index, continued to move lower year-over-year and 2nd quarter GDP came in at +2.4% (higher than expected and greater than +2.0% for Q1).  Market breadth continues to improve which could continue to aid the rally.  The number of S&P 500 companies that traded above their respective 50-day moving averages nearly hit 90% last week.  When we reach that kind of market breadth, it typically signals a rally, with 12-month returns following such a mark in breadth being positive 96% of the time.  

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