After The Close
The equity markets opened lower this morning, and remained mostly on the downside through the afternoon, as investors reacted negatively to a series of lackluster earnings reports. Further, concerns intensified that a broader trade war could develop between the United States and many other key countries. At the end of the session, the Dow Jones Industrial Average was down 135 points; the broader S&P 500 Index was off 11 points; and the NASDAQ was lower by 29 points. Meanwhile, it should be noted that sentiment was not that negative. Even though the major averages retreated, market breadth was slightly favorable, with advancers just ahead of decliners on the NYSE. From a sector perspective, the basic materials issues were off sharply, on fears that tariffs could hurt profits. However, the defensive utility names put in a constructive session.
In economic news, initial jobless claims fell to 207,000 during the week of July 14th, which was a better reading than analysts had anticipated. Further, the Conference Board’s Leading Indicators Index advanced 0.5% during the month of June, which was a constructive development. Finally, according to the Philadelphia Fed, business conditions in the Pennsylvania region held up well during the month of July. Tomorrow will be a quiet day, as no major economic news items are scheduled.
In the corporate sector, a few high-profile companies delivered reports over the past 24 hours. Specifically, shares of International Business Machines (IBM – Free IBM Stock Report) moved higher, as investors were encouraged by the technology giant’s recent numbers. However, shares of American Express(AXP – Free American Express Stock Report) retreated on concerns about the company’s top-line outlook. It is likely too early to say how the second-quarter earnings season will shape up. A clearer picture should emerge over the next few weeks. However, profit expectations are very strong.
Technically, stocks have managed to make some progress over the past few weeks. It remains to be seen if the bulls can keep their buying campaign in place.
– Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Fresh off of a solid day for equities on Tuesday, as generally strong earnings reports and upbeat surveys on industrial production and factory use combined to propel stocks moderately higher, the market began yesterday's session on more of a mixed note. That uneven showing would then continue through much of the morning and into the afternoon, with the Dow Jones Industrial Average, benefiting from strength in such components as American Express (AXP – Free American Express Stock Report) and United Health Group (UNH – Free UnitedHealth Group Stock Report), climbing steadily into the plus column through the day.
The major variable this week has been earnings, which have met or exceeded expectations for the vast majority of companies in the S&P 500 Index. Also, there has been the economy, which, too, has been giving a good account of itself, and has seen issuances this week showing healthy gains in retail spending, industrial production, and factory utilization, but a pullback in housing starts. That decline was offset by a stable showing in building permits, a more forward-looking indicator. Overall, though, the economy has been responding well enough for us to sense that GDP growth surpassed 4% in the recently concluded quarter.
Regarding the market, after that unprepossessing start, the Dow, as noted, proceeded to stay in the plus column, with the S&P 500 Index joining the win column during the afternoon. The NASDAQ also chimed in with a late uptick, after spending much of the day in the red, or breakeven, at best. Most of the key groups were in the green, but there still were three of the 10 sectors moving lower late in the session. The biggest casualty was the consumer non-cyclical group, with particular weakness in food stocks, such as General Mills (GIS), which fell almost three percent on the day.
Meantime, the transportation stocks did well on strong earnings on a day in which no Dow companies reported until after the close. Wall Street has long been optimistic about this past quarter's results, with the latest results, from just under 10% of the S&P 500 companies that already have reported have topped forecasts, scoring an average gain of more than 22%. That surpasses the 20% number many believe is in the bag. In other news, technology was mixed once more, while the homebuilding stocks fell following the setback in starts for June.
As to housing, it is too soon to detect a trend, and we do note that permits held essentially even for the latest month. Meanwhile, in another key release, the Federal Reserve issued its Beige Book summation of conditions across the country, showing expansion in in all of the 12 Fed Districts. This expansion took place at modest to moderate levels in 10 Districts, and a stronger pace in Dallas and at a slight rate in St. Louis. Breaking things down, we saw all Districts report tight labor markets, higher prices, greater consumer spending, and worries about tariffs and trade. This report will be used at the upcoming Fed meeting on July 31 and August 1.
Finally, the market would close on a generally strong note, with more stocks up than down, albeit just by a modest degree, and with more of the equity groups up than down. In total, the Dow added 79 points; the S&P 500 rose by six points; and the NASDAQ was flat on the day, giving up its nominal afternoon advance at the close. Looking ahead at the new day we see that shares in Asia were lower in overnight dealings and are off in Europe so far this morning. Elsewhere, U.S. Treasury notes are up in yield, to 2.90% on the 10-year vehicle, and the equity futures are trending downward before the open, as earnings flow in.
- Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
