foxex: Shaky Markets, Rate Uncertainty

Chart Advisor | Focus on the Price

Friday, July 19, 2019

1. Mixed Messages from the Fed

2. Microsoft Tops Mega Caps at Record Highs

3. Semis Surge Despite Headwinds

Market Moves

Stocks closed in the red again on Friday, ending the week on a sour note after having reached record-highs early in the week. Though stocks have been pressured for the past several days, the pullback from all-time highs should be placed in the proper context. For the S&P 500, price has only pulled back around 1.36% (as of the Friday close) from Monday's record high, so far. The Dow Jones Industrial Average has dropped even less than that from its own highs.

As it turns out, New York Fed President John Williams' Thursday speech, which was construed by investors as an exceptionally dovish signal that helped boost stocks, did not carry the intended message. A New York Fed spokesperson later clarified that the speech was never meant to indicate a more aggressive pace of interest rate cuts.

To make matters even less dovish, Boston Fed President Eric Rosengren told CNBC on Friday afternoon, "I don't want to ease if the economy is doing perfectly well without that easing." When combined with comments from other Fed members, it's clear that there's some real division and uncertainty within the Fed as to the path of monetary policy.

This less-dovish uncertainty helped to weigh on stocks on Friday, and also helped prompt a sharp pullback from new multi-year highs in gold futures. Despite this pullback in gold, the trend for the precious metal remains sharply to the upside. Gold prices have just hit a high not seen in more than six years. With expectations of lower interest rates still prevailing and economic risks looming, gold is likely poised to continue this general uptrend to higher highs.

Microsoft Tops Mega Caps at Record Highs

Though stocks closed significantly in the red on Friday, Microsoft (MSFT) was able to hit a new all-time intraday high at 141.02 before pulling back. Driving Microsoft's record move was the company's substantial earnings beat on Thursday after the market close.

The company reported earnings per share (EPS) of $1.71 per share against consensus expectations around $1.21 a share. Revenue also beat at $33.72 billion against a $32.77 billion forecast. This monster beat was driven in large part by a 39% year-over-year rise in revenue from the company's Azure cloud service, as well as strong growth in its LinkedIn division.

Clearly, Microsoft has been doing things right for many years. It's now the sole company listed on the U.S. exchanges with a market capitalization over $1 trillion. Following not too closely behind are Amazon.com (AMZN) and former $1 trillion capitalization leader, Apple (AAPL). Being the most mega of the mega caps and the only member of the Trillion Dollar Club is a pretty big deal.

Below is a 5+ year chart of MSFT with some of the key fundamental and technical milestones along the stock's massive run-up in price. Through the course of this chart, MSFT has risen by more than 300%.

Amex Beats on Earnings, but Stock Slumps Anyway

UnitedHealth Stock Is Consolidating a Bear Market Decline

Semis Surge Despite Headwinds

With all of the past and potential headwinds facing the semiconductor industry, it's a wonder that semiconductor stocks are doing remarkably well. The VanEck Vectors Semiconductor ETF (SMH), a fund holding some of the largest companies in the industry, is telling a very bullish story. Currently, the ETF is only around 4% below its April record high after having rallied sharply since early June.

Chief among the factors threatening the industry have been the two primary risk themes of the past few months – slowing global economic growth and an ongoing U.S.-China trade war. Related to the trade war, the recent U.S. government ban on exports to Huawei was also a major blow to chipmakers. As a result, earnings estimates for semiconductor companies this earnings season have been cut sharply.

What's been the driving force behind the recent surge in these stocks? Many of the most prominent semiconductor companies are strong growth companies and technology leaders. Also, the environment of lower interest rate expectations has given the semiconductor industry a boost, as it has for many other industries.

In any event, price doesn't lie, and the SMH ETF is closing in on its all-time high at 120.71, as the chart shows. Any number of factors could serve to derail the highly positive trend at any moment. But for the time being, that record high remains the primary upside target.

The Bottom Line

Markets have been rocked back and forth this week on shifting perceptions of the Fed's near-future monetary policy. Investors are constantly scrambling for position based on each nuance of language from key Fed members. Earnings season is in full gear and results have been mixed to positive so far. But until the highly-anticipated FOMC meeting at the end of this month, the Fed continues to hold the markets' rapt attention.

Have a great weekend!

How can we improve the new Chart Advisor? Tell us at chartadvisor@investopedia.com