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Stock market holds strong

Stock market holds strong
July 18
12:05 2017

U.S. stocks finished little changed Monday, after a session of struggling to push higher only to fall short of records, as investors looked toward key quarterly results that will be released this week to set the tone.

The Dow Jones Industrial Average DJIA, -0.35% declined 8.02 points to close at 21,629.72, just short of Friday’s all-time closing high. Shares of J.P. Morgan Chase & Co. JPM, -0.58% and International Business Machines Corp. IBM, +0.00% weighed on the average, while Microsoft Corp. MSFT, -0.59% and Home Depot Inc. HD, -0.75% led gainers.

The S&P 500 SPX, -0.05% which also ended at a record Friday, declined 0.13 points to close at 2,459.14.

Seven of the 11 primary S&P 500 sectors rose on the day, with health care leading decliners with a 0.3% dip. Utilities gained 0.4% while consumer-discretionary shares rose 0.3%, with traditional retailers showing signs of life as shares of Macy’s Inc. M, -0.78% closed up 3.1% and Kohl’s Corp. KSS, -0.53% shares gained 2.7%. As some have noted, insiders at retailers are starting to buy up shares. For the year, Macy’s is down 36%, and Kohl’s is down 19%.

The Nasdaq Composite Index COMP, +0.21% rose 1.97 points to close at 6,314.43, just shy of its last record close of 6,321.76 set June 8.

Whether stocks can extend further into record territory hinges partly on the outcome for earnings, with investors looking for signs that valuations are justified by the strength of corporate results, particularly given doubts about Washington’s ability to deliver a roster of Wall Street-friendly legislations.

Some 68 S&P 500 companies will report earnings this week, according to FactSet. Those include Bank of America Corp. BAC, -1.52% , Goldman Sachs Group Inc. GS, -2.51% , Microsoft Corp. MSFT, -0.59% and General Electric Co. GE, -0.21%

Those last three are likely to give a “nice flavor” of what to expect this earnings season, said J.J. Kinahan, chief strategist at TD Ameritrade, in an interview.

Goldman is likely to be a wild card in that it derives a sizable chunk of revenue from trading, which has been on the light side this past quarter, while Microsoft and GE will give a preview of global growth trends from tech and industrials, respectively, Kinahan said. But on the whole, investors have become a little more cautious heading into earnings, he said.

“No one likes or respects all-time highs in stocks, and earnings drive the market,” Kinahan said. “Expectations have been tempered over the past week or two, especially with a stalling legislative agenda, but there’s cautious optimism with good, not great, numbers.”

What will give stocks a push higher: While earnings are important, tax legislation remains the most important political issue for U.S. stocks, said Michael J. Wilson, equity strategist at Morgan Stanley, in a note to clients on Monday.

He said equity multiples must expand again for the S&P 500 to reach its 2017 target of 2,700, but the catalyst on that expansion would likely be “more policy ‘certainty’ rather than the outcome itself.”

“No matter what gets passed in the next few months, we think just moving forward with a decision on the Affordable Care Act and taxes will provide the certainty necessary for companies and individuals to ‘act’ on their higher confidence readings which have remained elevated,” said Wilson.

On the economic-data front, the New York Fed’s Empire State manufacturing index fell to a seasonally adjusted reading of 9.8 from 19.8 in June. Analysts were looking for a reading of 15.

Stocks to watch: Shares of investment manager BlackRock Inc. BLK, -0.98% closed down 3.1% after reporting a profit and sales miss, despite massive inflows into its low-fee exchange-traded funds.

Shares of J.B. Hunt Transport Services Inc. JBHT, -1.13% gained 1.8% despite posting a profit that was below expectations.

Blue Apron Holdings Inc. APRN, -4.25% tumbled more than 10% after Inc. AMZN, +1.32% filed a trademark for a meal kit service, suggesting the newly public company could face competition from the retail giant — a scenario that had already been spooking Blue Apron investors since Amazon’s proposed acquisition of Whole Foods Market Inc. WFM, -0.26%

Other markets: In China, the Shanghai Composite Index COMP, +0.22% closed down 1.4%, but off earlier lows as data showed expansion in the world’s second-biggest economy that beat forecasts with 6.9% second-quarter growth. Helping to spark the selling, Chinese officials at a financial conference hinted at tighter controls on the economy.

European stocks SXXP, -1.06% closed slightly higher, with the FTSE 100 index UKX, -0.19% gaining but Germany’s DAX 30 DAX, -1.25% falling.

Oil prices CLQ7, +0.48% declined 1.1% to settle at $46.02 a barrel, while gold futures GCQ7, +0.64% settled 0.5% higher at $1,233.70 an ounce. The dollar DXY, -0.63% was slightly lower. Meanwhile, the benchmark 10-year Treasury note yield TMUBMUSD10Y, -2.31% was down 2 basis points at 2.309%.

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