After the Close
Stocks ended the last full week of July on an up note, supported by a mostly positive tone to earnings and economic data.
The morning began with the release of a much-anticipated report on second-quarter GDP from the Commerce Department. In its entirety, the data did not disappoint, with GDP accelerating at a slightly-better-than-expected 2.1%. That was down from a 3.1% reading in the first quarter, when inventory stocking lifted performance, but solid nevertheless.
A jump in household spending drove the results, as rising incomes and a sense of job security as unemployment remains low allowed consumers to step up their buying activity. Of concern in the economy’s April-to-June showing was a drop in business spending, particularly among exporters and manufacturers.
The weaker business backdrop may lead the Federal Reserve to lower interest rates when the central bank concludes a two-day policy meeting on Wednesday of next week.
It may seem curious that the Fed is on the verge of lowering interest rates when the economy is doing okay, employment levels are high, and the stock market is hitting record levels. But the Fed may view easing monetary policy as the best way to ensure that the nation’s long-running economic expansion remains intact.
Stocks opened higher after the GDP report surprised to the upside and did not sway the possibility for lower interest rates ahead.
In particular, the technology sector was strong, providing relative strength to the tech-laden NASDAQ. Shares of Alphabet (GOOG), the parent of Internet search giant Google, surged after the company turned in favorable quarterly results and announced a $25 billion stock-repurchase plan after the closing bell yesterday.
Coffee retailer Starbucks (SBUX) also saw its stock rising nicely after the company reported earnings that topped analysts’ expectations.
At the end of the day, the Dow Jones Industrial was 51 points higher; the broad-based S&P 500 was up 22 points; and the NASDAQ shined with a 92-point gain.
In other markets, oil prices held steady at around $56 a barrel for the domestic benchmark and the yield on the 10-year Treasury note was little changed. But the price of gold edged higher, continuing the uptrend for that precious metal.
Next week is another big one for corporate earnings, while Wall Street will be keeping close tabs on the Federal Reserve’s midweek decision on interest rates.
– Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before The Bell
Earnings continue to flow in and for now, at least, that is the big story. Indeed, between the releases of critical economic reports earlier this month and next week's FOMC meeting, the focus is on the bottom lines of much of Corporate America. And for the most part, the data have been pleasing. However, there have been some notable outliers, including electric car maker Tesla (TSLA). That issue plummeted in price yesterday morning after the company reported another share loss in the latest three-month span in spite of record car deliveries.
As for the market's overall performance, the indexes started the session with little initial change, but quickly were engulfed in a sea of red, as the Dow Jones Industrial Average fell to an early loss of more than 150 points. Sizable losses also were posted by the S&P 500 and the NASDAQ. Among the contributors to this broad setback were Ford (F), with the automaker's earnings falling short of expectations. Also taking an early hit was Boeing (BA - Free Boeing Stock Report) for the second time in as many sessions. On the other hand, 3M Company saw its stock jump in early trading on an upbeat release. That company cited cost management efforts for its solid showing.
The market also digested comments by the European Central Bank President Mario Draghi, who said that there was not a significant risk of a recession in the region. Some pundits took that to mean that there would not be the kind of widespread stimulus efforts that had been expected. His comments come just days before next week's Federal Reserve meeting. At that time, expectations are that the bank will cut the federal funds rate target by at least 25 basis points. Encouragingly, after that weak opening, the Street saw some firming, with the Dow's loss easing to well under 100 points.
The losses continued to shrink in the second hour of trading, although there continued to be some big movers among individual issues, a number of them being on the losing end. Still, the setbacks were on the modest side, with earnings continuing to come in decently, but not as strongly, on average, as in some previous quarters. That realization contributed to a sharp mid-session selloff that would take the Dow Industrials to a session-worst loss of more than 200 points as traders returned to their desks after lunch. The market then would attempt to recoup some of those losses as the afternoon progressed.
Things, in fact, would improve meaningfully, with the Dow's loss shrinking steadily into the middle of the afternoon. The deficits in the S&P 500 and the NASDAQ also would be pared. Earnings season, which started out with a boom, enabling the averages to rise further, now has hit a selective speed bump, although more companies than not continue to come in ahead of expectations. The Street also was a bit nervous ahead of after-the-close earnings issuances and upcoming economic metrics. Given this jitteriness, it was not surprising that the market had another down leg as we approached the final hour of trading.
Once again, however, when it looked as though the market would be falling sharply, the buyers entered the fray and the losses narrowed. Things would change little as the day concluded, and at the close, the Dow would be off by 129 points; the S&P 500 would fall 16 points; and the NASDAQ would backtrack 83 points, or a full percentage points, as many more issues fell than rose on the day. Then, after the close, chipmaker Intel (INTC - Free Intel Stock Report) reported better-than-expected net results and released upbeat guidance. The stock rose sharply in after-hours trading.
Now, looking ahead at a new day, we see that the leading averages were lower across Asia in the overnight hours, while in Europe, the major bourses are trading with modest gains. Also, Treasury yields, up yesterday, are now fairly flat and oil prices are little changed. As to our market, the early signs point to a stronger start when trading resumes.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
