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The major indexes were up today on Alphabet’s (GOOG) huge quarter, reported yesterday. The Standard & Poor’s 500 stock index closed ahead 0.48% and the Dow Jones Industrial Average was up 0.79% at the close. Alphabet itself finished the day with a gain of 3.53%.

But there is some evidence in the earnings numbers–and particularly in the guidance for the rest of 2018–to suggest that the rally is narrowing. That is, the market continues to move up but on advances in a smaller number of stocks.


The poster child for my worry is Illinois Tool Works (ITW). The company, which makes fasteners and engineered systems, reported earnings after the close yesterday that were as penny below Wall Street consensus. But the real damage came from guidance where the company lowered guidance for the 2018 fiscal year to $7.50-$7.70 a share from $7.60 to $7.80. The stock plunged 7.2% on the report. (Today it has recovered part of that loss, gaining 1.42%.) Culprits look to be the stronger dollar and uncertainty in the automotive sector. Margins may have peaked, Wall Street worried, with the company lowering margin guidance to 24.5% from 25.25%.

Of course, an earnings report from one manufacturing and exporting company doesn’t a trend make. For another data point take a look at the earnings from 3M (MMM), reported before the open this morning. The company reported earnings of $2.59 a share, a penny below the Wall Street consensus. For the full fiscal 2018 year, the company tweaked guidance to $10.20-$10.45 a share from prior guidance of $10.20-$10.55 a share. The Wall Street consensus was at $10.33. The company kept its forecast for full year organic growth, measured in local currency, at 3% to 4%. By stating that guidance in local currency terms the company dodged the question of whether the dollar will be stronger in the second half and what that would to earnings.

The shares were up 0.93% today, slightly outpacing the broader indexes. That’s a good sign for market breadth.

On the other hand, financials lagged the indexes with the Financial Selected Sector SPDR ETF (XLF) closing up jut 0.29%. The financials have provided , along with energy and technology, key leadership at stages in this rally.

And on the third hand, the Energy Select Sector SPDR ETF (XLE) closed higher by 1.26% today.