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The S&P 500 Gears Up for Another Run at a Record

29 Jul 2018 4:00 pm
By Lauren Pollock and Peter Santilli 

After a rocky six months dominated by concerns about a pickup in inflation, simmering trade tensions with China and the potential for increased regulatory oversight of giant technology companies, the S&P 500 is back within 2% of its January record.

A number of potential catalysts that could push the index to new highs -- or send it tumbling again -- are on the calendar this week, including July's nonfarm payrolls report, due Friday; the Federal Reserve's latest policy meeting, which concludes Wednesday; and another busy week of corporate earnings reports.

Investors will be watching the monthly jobs report, which has been a big spark for stocks this year, for any signs of a run-up in wage growth or other indications the economy is overheating. Last month's report kept Fed officials on track to hold rates steady at this week's meeting and did little to change expectations that the central bank will next raise interest rates in September.

Meanwhile, a big burst of corporate earnings reports will hit the tape, including numbers from Caterpillar Inc. on Monday, Apple Inc. on Tuesday and Berkshire Hathaway Inc. on Friday.

To be sure, the broad stock-market index has made other runs at its record in recent months, only to be thwarted by issues including Facebook Inc.'s data-privacy scandal -- which sparked a big selloff in tech stocks -- or new tariff threats in the tit-for-tat trade dispute with China.

This week 140 companies in the S&P 500 are scheduled to report quarterly results, the last big week of the corporate earnings season. With results in for 53% of the companies in the index, 83% have posted stronger-than-expected profits and 77% have beat revenue estimates, according to FactSet. Earnings as a whole are on track to rise 21%, which would mark the second-highest rate since the third quarter of 2010, according to the data provider.

Apple, the world's most valuable company, has reported sluggish growth in iPhone shipments in recent quarters as people hold on to smartphones longer and competition intensifies in China, once its fastest-growing market. But higher average prices for the new devices have helped drive iPhone revenue, which is expected to be in focus again Tuesday when the company reports its fiscal third-quarter results.

The Federal Reserve isn't expected to boost interest rates when it concludes its two-day policy meeting Wednesday, but it has signaled it could do so twice more before the end of the year. That has pushed up yields on two-year Treasurys, which tend to be sensitive to expectations around monetary policy, and helped narrow the gap with yields on longer-term Treasurys. The dispersion between shorter-term and longer-term rates, known as the yield curve, is a crucial indicator of sentiment. Investors monitor the curve closely because short-term rates have exceeded longer-term ones before each recession since at least 1975.

Write to Lauren Pollock at lauren.pollock@wsj.com

(END) Dow Jones Newswires

July 29, 2018 12:00 ET (16:00 GMT)

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