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Shamrock Shakes, Trucks, and Tractors: McDonald’s, GM, CAT All Beat Earnings Estimates

July 25, 2017

(Tuesday Market Open) The cavalcade of earnings continues today, with better than expected results from three stalwarts — McDonald’s (MCD), Caterpillar (CAT), and General Motors (GM) — injecting some vigor even as the Fed begins another meeting.

As earnings rolled in, volatility measured by the VIX sank to new lows. The VIX recently traded at 9.14. There’s just no sign that investors harbor any fears about sudden choppiness in the market, at least judging from the VIX.

Tuesday opened with an explosion of solid earnings reports, notably from GM and CAT but also from other major companies like McDonald’s (MCD), United Technologies (UTX), and Biogen (BIIB).   

It appears the world really does like Shamrock Shakes, as MCD’s U.S. same-store sales climbed 3.9%, well above analysts’ expectations for 2.9%. CAT blew away expectations with earnings per share of $1.49, vs. Wall Street’s expected $1.26, and the company also raised its outlook. After today’s close come earnings from AT&T (T), a stock that many investors have been flocking to lately in search for yields.

Yesterday saw a strange mix in that the Nasdaq (COMP) continued to plow ahead, while the S&P 500 (SPX) and Dow Jones Industrial Average ($DJI) couldn’t make it north of the break-even line. The Nasdaq gains came ahead of a week in which we have many tech earnings, including names widely held and traded by TD Ameritrade clients, including Facebook (FB) and Amazon (AMZN). The week kicked off with Alphabet (GOOG) reporting after the close Monday.

GOOG’s earnings easily beat Wall Street analysts’ expectations on both top- and bottom-lines, with growth continuing through ad sales and YouTube. However with ad sales on mobile being less lucrative than desktop-based, the results weren’t as well taken on the Street, with the stock down approximately 3% after hours. So far, we’re seeing a good but unenthusiastic earnings season, with just over 75% of stocks that have reported so far beating on top line and just under 75% beating on the bottom line.

Despite tech’s post-GOOG struggles, Nasdaq did set a new all-time high Monday, putting in a settlement above 6,400 for the first time. The Russell 2000 index of smaller stocks also posted gains, but the S&P 500 (SPX) slipped a little. Telecom and utilities stocks — both of which tend to be interest rate sensitive — had the worst performances Monday, which is interesting in one sense because so few analysts expect any action from the Fed this week. As the Fed meeting begins today, odds of a rate hike are about the same as the odds of a near-term manned Mars landing, sitting at 3.1%, according to the futures market. Bond yields also sit near the low end of their recent trading ranges.

Though many investors seem likely to focus on the financial sector this week for any reaction to the Fed, it’s best to have eyes in the back of one’s head with all the news coming out at once. Today, the automobile companies start reporting, with GM leading the charge, followed by Ford (F) on Wednesday and Fiat Chrysler (FCAU) on Thursday. With sales of sedans flagging across the industry, the question is whether the company leaders address this trend and their possible response in their earnings calls. GM reported falling U.S. car sales and rising U.S. truck sales in its Q2, so people just aren’t as eager to have an old-fashioned four-door sitting out in the driveway.

On the data front, consumer confidence for July is on tap this morning, along with the S&P Case-Shiller Home Price Index for May. New home sales for June come out tomorrow morning.

Info Tech


Going into a big week for the info tech sector, technology (blue line) continues to outpace the broader S&P 500 Index (SPX) year-to-date. Data source: Standard & Poor’s. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.

Law of Supply and Demand: In Economics 101, we learn that prices tend to rise as supply falls. That’s exactly what’s happening now in the housing market, at least judging from Monday’s existing home sales report for June. While total housing inventory was down more than 7.5% from a year ago, the median price for existing homes rose 6.5% to $263,800, the 64th-straight month in which prices rose year over year. “The demand for buying a home is as strong as it has been since before the Great Recession,” said Lawrence Yun, Chief Economist at the National Association of Realtors. “Listings in the affordable price range continue to be scooped up rapidly, but the severe housing shortages inflicting many markets are keeping a large segment of would-be buyers on the sidelines." Overall, June existing home sales came in slightly below Wall Street analysts’ estimates, but slightly above year-ago levels. The takeaway for investors is the firm demand, potentially a sign of economic health.

Fear of Hedging? The sleepy summer continues for volatility despite this crazy week with 200 earnings reports, a Fed meeting, an OPEC meeting, and key economic data. The VIX, which fell to near 24-year lows last week, droned along not far from those levels Monday and stayed well under 10. Tuesday morning’s readings weren’t far above 9, and marked new lows. It’s gotten to the point where the low levels in the VIX are reducing even the amount of hedging activity against a sharp leap in the index. Investors are basically saying they’re OK taking a risk. That might reflect the experience of the last six months or so, in which many people were hedging and getting punched in the face.

Tech May Tell Tale for Market: There hasn’t been a 5% dip in the S&P 500 (SPX) since early last year, historically a long time for the market to go without such a retracement. While there’s no way to predict the chances of such a move happening with any real accuracy, it’s fair to say that any disappointments from the tech sector could conceivably raise chances for a pullback. Info tech has been the shining star so far this year, so it’s likely to remain in the spotlight this week as big companies like GOOG and Facebook (FB) report. While info tech is just one of 11 sectors, its strength this year has carried the market along, and now some investors might see this as the time for tech companies to prove that their underlying health supports their stocks’ huge climbs. Any stumble in tech could prove difficult to navigate, as we saw when the overall market flattened in June as the tech sector struggled.

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