Earnings are strong but investors are on the sidelines: trader

Alan Valdes
Alan Valdes

By Alan Valdes, director of floor operations at Silverbear Capital

Another Monday, another record! The markets closed mixed yesterday with the Dow (^DJI, DIA) closing down 66.90 to finish the day at 21,513.19. The S&P 500 (^GSPC, SPY) closed down a fractional -0.11% to round out the day at 2,469.91. It was the tech-heavy Nasdaq (^IXIC, QQQ) that broke another intraday and closing high—up 0.36% to end the session at 6,410.81. The Nasdaq year to date is up nearly 20%. The Russell 2000 (^RUT, IWM) closed up 2.22 for a closing print of 1,438.05. Gold, after breaking through its 50- and 200-day moving averages, appeared ready to run.

This is the biggest week of Q2 earnings season, with roughly 190 S&P 500 companies reporting. The spotlight will be on some big tech names: Facebook (FB), Amazon (AMZN) and Alphabet (GOOGL, GOOG). Google’s parent company reported better-than-expected results after the bell yesterday—except in the area of traffic acquisition costs. Investors took the opportunity to take some money off the table with the stock near its 52-week high.

Surprisingly, it looks like many investors may stay on the sidelines this week to see where the dust settles. Monday, volume on all US exchanges totaled 5.5 billion, down from the last 20 session average of 6.1 billion. As of Friday, 73% of the S&P companies that reported beat earnings and 77% topped sales estimates, showing a strong start to the earnings season so far.

Energy also had a strong day. Black gold rose more than 1% in the overnight market on news that Saudi Arabia said it would reduce its exports in August and also that Nigeria would start to cap its output. Brent Crude rose 0.16% to trade at 48.68, while US crude rose 0.22% to trade at $46.44.

The Fed kicks off its two-day FOMC policy meeting today with no expected surprises. Traders will be focused on the Fed statements for any insight into the shape of the economy and clues as to the next rate hike. The VIX (^VIX, VXX), also known as the fear gauge, closed yesterday at 9.43 after reaching the second lowest close in history on Friday at 9.36. It was back in December 1997, that the VIX hit 8.89. The VIX has closed 21 times in its history below the 10 level, and 12 of those have been since May of this year. Periods of low volatility can persist longer than you might expect but can also turn on a dime.