After The Close
The market started out in the red today, as a few lackluster earnings reports after the closing bell yesterday and before the open today spooked the Street. Indeed, Dow-30 components 3M(MMM – Free 3M Stock Report) and Dow Inc. (DOW – Free Dow Stock Report) recorded weaker-than-expected profits. This caused the Dow Jones Industrial Average to fall by as many as 150 points in the early portion of the day, while the other composites declined in tandem. The indices then rebounded a bit, before resuming their downward trend. The Dow, in fact, was down by as many as 208 points at one time. Much of the latter portion of the day could be described as a series of lower highs and lows, and the indices finished the day not far from their nadirs. All told, the Dow closed down 129 points, the S&P 500 was off by 16 points, and the NASDAQ fell 83 points.
Additionally, market breadth was rather negative, as decliners outpaced advancers by a 2.6-to-1.0 ratio. Consumer staples stocks were among the best performers on the day, though only on a relative basis. On the other hand, energy issues were among the weakest, despite higher prices for the related goods.
In commodity news, oil prices were higher, as fears about global supply rose due to increased tensions across the Middle East. Meantime, U.S. Treasury bond yields were higher across the board, as a move away from the safe-haven assets occurred. The longer-dated yields rose more than those in the near term, which is normally a good sign for financial companies’ earnings. These moves are somewhat surprising given the movement in equities was lower throughout the day. Meantime, the VIX Volatility Index increased, as demand for options protection rose.
Looking ahead, economic news will be at the forefront tomorrow, as the first estimate for second-quarter GDP will be released. The Street expects this report to show that the U.S. economy grew 1.8% in the period, and many traders believe that weaker growth would increase the odds of a series of interest-rate cuts in the coming months. Additionally, Dow-component McDonald’s (MCD – Free McDonald’s Stock Report) is slated to report quarterly results tomorrow morning, while several large tech companies, including Dow-component Intel (INTC – Free Intel Stock Report), reported after the closing bell today.
– John E. Seibert III
At the time of this article’s writing, the author had positions in some of the companies mentioned.
Before The Bell
Lackluster, albeit expected, results from aerospace and defense giant Boeing (BA - Free Boeing Stock Report) and disappointing metrics from fellow Dow Jones Industrial Average component Caterpillar (CAT - Free Caterpillar Stock Report) combined to take the 30-stock blue chip composite down sharply at the opening of trading yesterday. Indeed, just a day after the Dow sped ahead late in the session on rising trade hopes, the listless profit results from those two old-line industrial behemoths helped send the Dow to an early loss of more than 100 points. However, as has been the case throughout this bullish year, the rest of the market continued to hold its own.
Indeed, as we passed the first hour of trading, the S&P 500, a more broadly configured equity index, and the tech-laden NASDAQ had edged into the green, while the Dow, still lower, had narrowed its losses somewhat. Overall, this has been a decent earnings season, but hardly one to write home about, as there have been some high-profile bottom-line misses. Also concerning traders were unresolved trade issues and fears regarding big tech and regulatory efforts. Back to earnings, a quarter of the S&P 500 companies have reported and results show that 78% of them have beaten expectations--a good but not an exceptional percentage.
Meanwhile, on the economic front, the Census Bureau reported that new single-family houses sold at an annualized rate of 646,000 in June. That was 7.0% above the 604,000 pace in May. Note that the May tally had been revised downward from 626,000 homes to the 604,000 rate. Also, the June level was below expectations of 659,000 home sales. Still, this result was a decent outcome and compares favorably with the modest declines in housing starts, building permits, and sales of existing homes reported earlier this month. Even so, this solid showing failed to move the bulls.
Regarding the market, after that attempted comeback, stocks wilted again as the morning moved to a conclusion, with the Dow once more falling sharply to a loss of more than 150 points at one time on those earnings concerns and trade uncertainty. The latter fear was stoked further after the Treasury Secretary expressed only hopes that the trade process will show progress in this difficult quest. So stocks remained under pressure as the morning drew to a close, although the worst of the selling seemed to have passed as the morning turned into the early afternoon, and as the NASDAQ held in the green.
The afternoon then saw this bifurcated equity market remain in place with the S&P 500 Index and the NASDAQ continuing to hold nice gains, while the Dow stayed comfortably in the red with losses of between 100 and 140 points, for the most part. Not only was the latter held in check by Boeing and Caterpillar, but losses in UnitedHealth Group (UNH - Free UnitedHealth Group Stock Report) took a chunk out of that composite. As for gainers, they could be found in technology, with the recent strength in the chipmakers persisting. The move into the middle and late afternoon would bring more strength to the other indexes, most notably the small-cap Russell 2000.
The market would then drift into the close with the Dow's loss finally easing to fewer than 100 points, while the NASDAQ forged to an all-time record on the strength in tech ahead of some key profit releases, gaining a strong 70 points. The S&P 500 also did well on what was a strong day for equities, overall. It seems that earnings were the big driver yesterday, with the Fed, the economy, politics, and trade all in the background to a degree. We would expect this pattern to continue in the day ahead, with the Federal Reserve resuming its place at the head of the list of influences next week when the FOMC meets on Tuesday and Wednesday.
Looking out to a new day now, we see that the major indexes were higher in Asia in the overnight hours, while in Europe, the key bourses are moving into positive ground, as well. Elsewhere, oil prices are rising in the early going and Treasury yields, which eased to 2.05% on the 10-year note, now are at 2.03%. Finally, on another heavy earnings day and one day ahead of the first look at second-quarter GDP, in which the consensus estimate is that the economy grew by 1.8% in the April-through-June period, the equity futures are pointing to a mixed open.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
