After the Close
The major averages ended the week on Friday taking a break from their recent record-setting performances. At the closing bell, the Dow Jones Industrial Average was off 32 points; the NASDAQ dropped a couple of points; and the S&P 500 pulled back ever so slightly. Market breadth was more clearly tilted to the downside, but not excessively so. Decliners outpaced advancing issues on both the New York Stock Exchange and the NASDAQ.
Part of the weakness in the latest trading session was traced to an underwhelming annual profit projection from Dow-30 component General Electric (GE - Free General Electric Stock Report). That weighed on the shares of other industrial conglomerates in the Dow, such as 3M (MMM - Free 3M Stock Report) and Caterpillar (CAT - Free Caterpillar Stock Report).
A drop in oil prices didn’t help, either. Crude oil futures fell more than $1 a barrel in NYMEX trading as concerns arose about a possible increase in OPEC production in July. Market sentiment in general has been bearish as global inventories decline at a slower-than-expected rate. The energy sector was the worst performer among the stock market’s major groupings as a result.
Having oil prices in a lower range remains a major plus for the broader economy, though. The travel group AAA reported this morning that the national average for a gallon of regular gasoline is $2.28. While that is a touch higher than the $2.19 of a year earlier, pump prices remain readily affordable. In contrast, gasoline prices were $4.11 a gallon nine summers ago in the midst of a recession, crimping travel across the board.
Meanwhile, the best performing sectors were the better dividend-paying utilities, telecom, and consumer staples sectors, indicating a defensive tone to the day.
Stocks that reported upbeat performance and/or prospects also got a warm reception on Wall Street. Those included financial services leader Capital One (COF), industrial services specialist Cintas (CTAS), and information provider Moody’s (MCO).
Next week will see a flood of earnings reports, in particular from some of the technology stocks, such as Amazon.com (AMZN), Alphabet (GOOG), and Facebook (FB) that have provided market leadership this year. Those types of stocks, supported by secular business growth, have thus far been viewed as less vulnerable to shifting Washington policies. – Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 12:00 PM EDT
Declining shares outnumbered advancing issues by a roughly 1.5-to-1 ratio on Friday morning, as investors processed earnings, political news, and took advantage of elevated valuations across the board. Looking at the indexes, the Dow was the biggest laggard this morning, as a disappointing revenue release from diversified component General Electric (GE – Free GE Stock Report) pulled the average lower. The blue chip composite neared historically high intraday levels on Monday, but has since struggled to retain any meaningful momentum due to mixed earnings reports from its constituents. However, the broad-based S&P 500 and NASDAQ, save for the morning downturn, have both enjoyed solid weekly performances. This, we think, speaks to what has been a largely positive second-quarter earnings campaign. So far, roughly 75% of all reporting companies have delivered or outperformed on consensus estimates.
Also playing into the bearish undertone are ongoing developments from the Capitol. Should the inquiry by the special counsel become a prolonged distraction for the White House, it may impact the President’s ability to pass key legislation on deregulation, infrastructure, and tax reform. This three-pronged economic stimulus strategy was the catalyst for the historic market run up since November, so a failure to deliver on these fronts would ostensibly threaten the bullish backdrop. Still, there exists a pervading optimism for the Administration’s resolve at implementing at least one of these policies, with JPMorgan Chase (JPM – Free JPMorgan Stock Report) raising its year-end forecast for the S&P 500 on the belief that tax reform will spur another wave of buying in the near future.
Meanwhile, U.S. crude oil saw substantially all of its weeklong rally erased after OPEC revealed supply will increase among its member nations in the month of July. The cartel meets in St. Petersburg, Russia on Monday, in an unofficial summit with allied countries to assess the adherence levels to its drilling accord. Today’s news, which sent U.S. crude more than 1.50% lower, may have been intended to soften the blow ahead of next week’s update. Accordingly, the energy and industrial sectors are leading the declining groups so far today.
So, with half a day left in the trading week, we expect the S&P 500 and NASDAQ to hold on to their five-day gains, while the Dow has its work cut out if it hopes to salvage an increase this afternoon. Second-quarter earnings will hold the biggest influence over the market next week, when the bulls will look to reclaim momentum before the seasonally quiet August session begins. 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
The stock market, which climbed nicely to end a mostly range-bound session on Wednesday, got out of the gate quickly yesterday morning, aided by comments from European Central Bank President Mario Draghi on possible changes to its bond-buying program and by a decision at the ECB to keep interest rates unchanged, a move that had been generally expected. But the buying was short lived. Indeed, as we passed the half-hour mark of the session, the composites were mixed, with the Dow Jones Industrial Average easing back modestly, while the S&P 500 Index and the NASDAQ scored additional all-time highs.
In the case of these latter indexes, their early strength, too, lessened as the morning progressed, with the NASDAQ easing into the red for a spell. Meanwhile, investors were continuing to watch the release of corporate earnings. Most of the issuances were upbeat, if uneven, at times, with some three-quarters of the companies domiciled in the S&P 500 Index topping profit expectations. That is in keeping with the recent past on Wall Street and is reassuring for a market that is certainly not undervalued at this time. The solid earnings performances are helping to keep serious profit taking at bay, for now.
Then, after a brief selloff, which took the Dow down to a morning-worst decline of some 65 points, the market, as has so often been the case this year, regrouped and as the afternoon began, the Dow's loss had eased to a more manageable 10-20 points. The other indexes, both large- and small-cap, meantime, stayed modestly in the black, for the most part. A few stocks underwent moves of note, including PPG Industries (PPG), with that diversified chemicals manufacturer announcing an acquisition that did not sit well with investors, even though the giant corporation posted solid quarterly metrics in the meantime.
Stocks then drifted in range-bound fashion through the middle part of the afternoon, never straying too far from the neutral line, as nervous investors further reacted to companies already reporting and to those about to over the next few weeks, as second-quarter reporting season kicks into high gear. Results, as noted, have been good for the most part, and, as also affirmed above, is helping the Street to continue its resilience. That strength again was on display yesterday in the afternoon, as the three large-cap averages all managed to turn positive as the final hour began.
But the move into the green was incremental, at best, and we saw some backtracking at times as the session wound down, with favorable earnings being offset to a degree by concerns about ongoing investigations of the Trump Administration. In fact, it was the latest revelation that Special Counsel Robert Mueller was looking into the business dealings of the President and some of his close associates that engendered the morning selling. The major indexes quickly recovered, though, as has been the pattern when such political drama unfolds.
The market remained near the breakeven point until late in the session when the Dow saw enough, but still modest, selling to put that average down by 29 points. The S&P 500 Index was essentially flat, while the NASDAQ managed to gain a handful of points. The smaller indexes were little changed. As to economic influences, the Index of Leading Economic Indicators provided an upward surprise, increasing in June by 0.6%. That sharp increase followed unimposing 0.2% gains in both April and May. Expectations had been for a rise of 0.4%, within a forecast range of 0.2%-0.5%.
Looking out to the concluding session of this week and casting our eyes abroad, as we most always do, we see that the markets lower in Asia overnight, while in Europe, the principal bourses are tracking downward, as well, so far this morning. Elsewhere, on this day that will feature few economic items of note stateside, we see that oil prices are ticking up a few pennies a barrel; gold quotations are essentially flat; and Treasury yields are off a bit. Finally, our equity futures are suggesting a lower start to the new trading day when action resumes at 9:30. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
