Earnings, Tech Stocks Drive Wall Street Higher

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Equities moved ahead again Thursday, the fifth gain in six sessions, as investors continue to show relief in the wake of the Greek bailout deal found early Monday morning. The catalyst today was the overnight passage of that deal by the Greek parliament, which in turn unlocked fresh liquidity support from the European Central Bank.

As a result, Greece’s banks are expected to reopen on Monday after what will be a three-week closure. Also lifting spirits was a rebound in Chinese equities, breaking two days of declines, with the Shanghai Composite up 0.5%.

In the end, the Dow Jones Industrial Average gained 0.4%, the S&P 500 gained 0.8%, the Nasdaq Composite gained 1.3% and the Russell 2000 gained 0.7%.

dow jones industrial average chart

Crude oil lost another 0.8% on reports an Iranian crude tanker has set sail for Singapore with Tehran eager to reenter the global energy markets. That lifted the ProShares UltraShort Crude Oil (NYSEARCA:SCO) recommended to Edge subscribers by 2% to take the month-to-date gain to 31.4%.

uso etf chart

Utility and technology stocks led the way in a strange mix of defensive and risk-on enthusiasm. Netflix, Inc. (NASDAQ:NFLX) surged 18% after reporting stronger-than-expected subscriber growth. Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) climbed 3.5% after enjoying an upgrade from BMO analysts citing firmer profit margins, then shot 12% higher after-hours on an earnings beat. Amazon.com, Inc. (NASDAQ:AMZN) gained 3.1% after reporting it sold more units on its Amazon Prime Day than the biggest Black Friday ever. And eBay Inc (NASDAQ:EBAY) added 3.2% thanks to a Q2 earnings beat.

Materials stocks were the only area to finish lower today on earnings news.

Federal Reserve chairman Janet Yellen’s wrapped up her semi-annual monetary policy testimony to Congress today. Overall, her comments were largely as expected, reiterating that rate hikes are more than likely this year.

This reinforced the takeaway from a speech she gave last Friday: Despite turmoil in China and Greece, and some uneven economic data (June retail sales, for instance), the Fed is preparing to raise interest rates for the first time since 2006.

This expectation for two rate hikes has been baked into the Summary of Economic Projections or “dot plot” of individual Fed policymakers for the last six months. And the consensus of Wall Street economists is that the Fed’s September policy meeting will be the one for liftoff.

But the market is in denial: Goldman Sachs economist Jan Hatzius notes that swaps pricing suggests traders don’t think the Fed will hike until December — which is his base case timing estimate. We’ll know more when the Fed concludes its next two-day policy meeting on July 29.

Based on her comments, Yellen seems to be leaning toward a quick liftoff timing in exchange for a more gradual pace of tightening instead of waiting too long, wage inflation taking off, forcing the Fed to tighten more quickly. During the question and answer session with lawmakers, she said “we are close to where we want to be and we now thing that the economy cannot only tolerate but needs higher rate.”

Kris Dawsey at Goldman Sachs points out that one of the reasons the market believes the Fed will wait until the very last minute to raise rates this year is that it’s adopted a “we won’t get fooled again” mentality after the Fed has repeatedly overestimated its willingness to tighten policy.

Remember that Yellen last year ditched the 6.5% unemployment rate threshold for a rate hike that was established by her predecessor. The Fed also surprised the markets by holding off on starting the tapering of its QE3 bond purchase stimulus in December 2013 instead of September that year.

Perhaps, two years later, another dovish surprise awaits investors this September.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Two- and four-week free trial offers have been extended to InvestorPlace readers.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/earnings-tech-stocks-drive-wall-street-higher/.

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