After The Close
Despite spending the majority of Friday’s session in positive territory, the major U.S. indexes turned negative in the final hour of trading. Solid earnings performances from Microsoft (MSFT – Free Microsoft Stock Report), Honeywell (HON), and others helped the bulls control the direction of equities up to a point, until President Trump’s comments on trade ostensibly stirred enough uncertainty to open the doors for some late-day profit taking. Specifically, he suggested more tariffs on Chinese goods may be in the cards. By the end of the session, advancing and declining shares were roughly even, while most of the market sectors wrapped up the session on positive ground.
Elsewhere, there was a relative dearth of news items from the business beat. In fact, a report that indicated President Trump was weary of two potential interest-rate increases from the Federal Reserve was the only notable story. We doubt this had much of a lasting impact on the day’s trading, however, with mostly supportive developments from Corporate America stoking a positive undertone that persisted through mid-afternoon. Dow-30 component Disney (DIS – Free Walt Disney Stock Report) continues to trade near 52-week highs after yesterday’s effective victory over Comcast (CMCSA) in its efforts to purchase the entertainment assets of Twenty-First Century Fox (FOXA). This optimism is likely to be challenged early next week when Google’s parent company Alphabet (GOOG) reports earnings. The company is expected to incur a more-than $5 billion fine related to Android business practices.
Meanwhile, U.S. crude oil rose above $70, though still reported its third-consecutive weekly loss. The commodity benefited from the trade-related uncertainty in the equity markets. Late week, assurances from Saudi Arabia that oversupply concerns were not as severe as previously thought, helped domestic crude bounce back on Thursday and Friday.
Ultimately, the late-day softness ended up dragging the large-cap indexes closer to their breakeven lines for the five-day period. Next week, geopolitical developments are liable to remain a partial drag on further earnings-related strength. As ever, stay tuned.
– Robert Harrington
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Before The Bell
As to the major movers, we saw declines among Dow-30 components American Express (AXP – Free American Express Stock Report) on some revenue disappointments and Travelers Cos. (TRV – Free Travelers Stock Report) on an earnings miss. However, Walt Disney (DIS – Free Disney Stock Report) shares jumped on news it had won the bidding war on a key acquisition. Elsewhere, changes were modest, with the small-cap indexes clearly outperforming their larger-cap peers, as we passed from the morning into the early afternoon. Then, as the afternoon began, the market weakened anew, but not as materially as before, with the Dow sinking by 125 points.
A second comeback wave then ensued, as the Street seems able to rally on any weakness, which has long been a staple of this bull market, which is now nearly a decade long. Regarding earnings, they continue to top estimates, even with some high-profile misses as we noted above. And the flow of earnings continues to come in, with another two weeks, or more, of high-volume reports still on tap. Of course, earnings are not all that investors have on their minds, with the trade and tariff standoff and threats of a trade war between the United States, China, and perhaps Europe still in place.
Then, there is the Federal Reserve, which will be meeting on July 31st and August 1st. Expectations are that it will hold the line on interest rates at that get together, but raise them twice more down the stretch in 2018. At least three more rate hikes would seem likely to follow in 2019. Should this scenario come to pass, the market would appear likely able to handle it, as it should earnings, where forecasts call for a 20% plus rate of improvement for the second quarter. The trade rift, however, is another matter and that holds the potential to disrupt things to a degree.
The market then stayed lower, at least on the large-cap end, into the latter stages of the afternoon, with the market finally settling in near the session's lows on the Dow. In all, that composite ended matters off by 135 points, despite a further decline in weekly jobless claims. Also, the S&P 500 fell 11 points and the NASDAQ lost 29 points. However, the S&P Mid-Cap 400 and the small-cap Russell 2000 Composite both gained ground. As such, it was a mixed session ahead of the week's concluding session which is about to begin rather shortly.
As to that session, stocks in Asia were mostly higher in overnight dealings, while in Europe, the Continent's leading bourses are somewhat mixed at this hour. Also, yields on the 10-year Treasury note, which fell sharply yesterday, are moving up a little this morning, and the equity futures are showing a weaker early pattern on our shores. As was the case yesterday, we would expect earnings to again be the major factor in trading today, although the heightened trade tensions will be an influence, as well. Finally, after a busy week for economic issuances, today's session will be quiet in that regard.
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
