This morning, the economic calendar is sparse, with no reports of significance scheduled to be released. This will likely put more of Wall Street’s attention on Corporate America, with more second-quarter results starting to hit the newswires. Later this morning, we will also hear monetary policy commentary from New York Federal Reserve President John Williams and Atlanta Federal Reserve President Raphael Bostic. The equity futures are indicating another divergent start for the major indexes today, with the NASDAQ Composite and the S&P 500 Index opening slightly higher, while some modest profit-taking is likely on tap for the Dow Jones Industrials.
The headline earnings report since the close of trading yesterday afternoon came from Netflix (NFLX). The streaming giant and original content producer reported earnings per share of $4.88, on a revenue advance of 16.8%, to $9.56 billion; both figures exceeded forecasts. Netflix’s subscriber net adds also easily surpassed expectations (eight million versus 4.8 million estimate), but the stock is trading nominally lower on reduced third-quarter guidance. It may be more the case of some profit taking on the quarterly results after a strong rise in the stock’s share price.
In other news from Corporate America, the stock of PPG Industries (PPG) is in the red after the specialty chemicals maker reported its latest quarterly results. Conversely, the shares of Intuitive Surgical (ISRG) are higher in extended hours trading after the producer of invasive medical products posted strong quarterly results, with adjusted earnings-per-share growth of 25.3%. Likewise, credit card giant American Express (AXP) reported a better-than-anticipated second-quarter profit and raised its full-year earnings-per-share prognostications. However, shares of the Dow-30 component are looking at a modestly lower start.
The week to date has produced bifurcated trading results, with the Dow Jones Industrial Average often moving in an opposite direction to the broader S&P 500 Index and the technology-heavy NASDAQ Composite. The Dow 30 has gotten a boost from its blue-chip financial components, which have moved higher on the recent series of strong second-quarter results from the big-bank money centers. Conversely, the S&P 500 Index has been hurt by some profit taking in the technology sector and weakness among the “Magnificent Seven” stocks, which account for a significant percentage of the Index’s weighting. This has also hurt the NASDAQ Composite, along with Wednesday’s sharp declines in the semiconductor and semiconductor equipment sectors. These stocks fell on reports that the Biden Administration is considering tighter restrictions on chip manufacturing to China, while former President Trump vowed to increase tariffs on China if he wins reelection in November.
The rotation out of some of the aforementioned broader averages has been to the benefit of the small-cap sector, which did not perform nearly as well as its large-cap brethren over the first half of this year. Although all of the major indexes fell during yesterday’s bearish session, the small-cap Russell 2000 is still up roughly 8% since July 9th. The primary catalyst is building sentiment on Wall Street that the Federal Reserve may soon begin to loosen monetary policy, perhaps as early as the September Federal Open Market Committee (FOMC) meeting. This would likely boost the stocks of the interest-rate sensitive small-cap companies. Hence the recent rally in the small-cap sector. That said, this is a Presidential election year, and action on the monetary-policy front remains fluid.
In general, the trading week has seen an increase in market volatility after an extended stretch this year of tranquil trading. The CBOE Volatility Index (or VIX), often known as the “fear gauge,” jumped 10% yesterday and is up 28% since the start of the week. Whether this upward move in volatility continues today and into next week will likely depend on the forthcoming quarterly results, which includes releases from technology companies Alphabet (GOOG) and International Business Machines (IBM), as well as electric vehicle maker Tesla (TSLA). The Federal Reserve enters a quiet period ahead of its two-day monetary policy meeting, which commences on July 30th. Overall, the VIX trading at 15.93 still suggests only modest volatility in the equity market. - William G. Ferguson
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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