Stock Market Today: July 24, 2018

Simmering global tensions on trade, especially with China, and some back-and-forth threats with Iran combined to start things off on a lower track on Wall Street yesterday. At its morning lows, however, the stock market was off just moderately, with the Dow Jones Industrial Average down by only 75 points. However, that early setback did push the blue chip composite below the 25,000 mark. Encouragingly, though, despite several morning dips, the bears could not mount a sustained assault on Dow 25,000. So, the selling gradually ran its course.

Indeed, after the S&P 500 Index and the NASDAQ both entered the plus column by late morning, the Dow followed along as the afternoon began, and by 1:00 PM (EDT) on the East Coast, the three large-cap indexes were all on the plus side of the ledger, if modestly so. Optimism on earnings seemed to be largely the reason for the mid-session firming. As to profits, they have been very strong, and second-quarter net increases are likely to exceed 20%. That would be a hard bar to top going forward.

Meantime, profit reports will be hot and heavy this week, with the giant technology companies taking center stage in the days to come. Expectations there are high, and if the Street does, in fact, have reason to cheer, those big earners would join the banks in leading the way during reporting season. Among the tech winners to date have been Microsoft (MSFT – Free Microsoft Stock Report), with the software behemoth beating expectations and its stock setting yet a series of additional all-time highs.      

In other news, the Street will be looking ahead to this Friday's release of second-quarter GDP growth. Consensus forecasts are for growth to have exceeded 4%. Should that be the case, the market could have further reason to cheer. All of this aside, stocks did not extend this midday bounce very far, and the Dow and the other key indexes spent the balance of the session going back and forth between modest gains and nominal losses. On balance, the bias remained to the downside for much of the remainder of the session.

Things stayed in some flux until the close, and at day's end, we would see the Dow finish the session off 14 points. The NASDAQ, though, on strength in technology, added 22 points. Still, seven of the top 10 equity sectors closed out the day in the red, while on the Big Board, losing stocks held a 10-to-7 advantage. Leading the way were the tech issues, while the industrials were among the poorer performers. As for individual issues, shares of Google parent Alphabet (GOOG) were strong ahead of earnings.

Then, after the close, Google did beat the Street's consensus for the latest quarter and the issue jumped by more than 4% in after-hours action. Regarding earnings, more than 80% of companies have beaten forecasts for the second quarter thus far, a very high ratio and one that should get the attention of the bulls. On the other hand, estimates for the third quarter are not being raised, which is somewhat worrisome, and could lead to problems as that period's results get closer into view. 

Looking out at a new day now, we see that after yesterday's unimposing close in New York, the major indexes posted higher in Asia overnight, while in Europe so far this morning, the key bourses are trending upward, as well. Elsewhere, as earnings continue to flow in, Treasury note yields, which soared to 2.96% late yesterday on the 10-year note, as Federal Reserve Chair Jerome Powell signaled that more  interest rate hikes were on the way, are now passing hands at 2.95%. Finally, the early action in our equity futures is positive, suggesting a higher open when trading resumes this morning. 

 

- Harvey S. Katz, CFA